1. G.R. No.

L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner, vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
FELICIANO, J.:

Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in
Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring such material to
Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the
return trip to Pangasinan, respondent would load his vehicles with cargo which various merchants wanted
delivered to differing establishments in Pangasinan. For that service, respondent charged freight rates which were
commonly lower than regular commercial rates.

Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk
Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of
Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on
or before 4 December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on
to his trucks: 150 cartons were loaded on a truck driven by respondent himself, while 600 cartons were placed on
board the other truck which was driven by Manuel Estrada, respondent's driver and employee.

Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner,
since the truck which carried these boxes was hijacked somewhere along the MacArthur Highway in Paniqui,
Tarlac, by armed men who took with them the truck, its driver, his helper and the cargo.

On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of
Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and
attorney's fees. Petitioner argued that private respondent, being a common carrier, and having failed to exercise
the extraordinary diligence required of him by the law, should be held liable for the value of the undelivered
goods.

In his Answer, private respondent denied that he was a common carrier and argued that he could not be held
responsible for the value of the lost goods, such loss having been due to force majeure.

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common carrier
and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages
and P 2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a
common carrier; in finding that he had habitually offered trucking services to the public; in not exempting him from
liability on the ground of force majeure; and in ordering him to pay damages and attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in
transporting return loads of freight "as a casual
occupation — a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by
way of a Petition for Review assigning as errors the following conclusions of the Court of Appeals:

1. that private respondent was not a common carrier;

2. that the hijacking of respondent's truck was force majeure; and

3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)

We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set
forth, be properly characterized as a common carrier.

The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their
services to the public.

The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article
1732 also carefully avoids making any distinction between a person or enterprise offering transportation service
on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business only from a narrow segment of
the general population. We think that Article 1733 deliberaom making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion
of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes:

... every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or
carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft,
engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice
plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power
petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations
and other similar public services. ... (Emphasis supplied)

It appears to the Court that private respondent is properly characterized as a common carrier even though he
merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was
done on a periodic or occasional rather than regular or scheduled manner, and even though private
respondent's principal  occupation was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial freight
rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a
requisite for the incurring of liability under the Civil Code provisions governing common carriers. That liability
arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has
also complied with the requirements of the applicable regulatory statute and implementing regulations and has
been granted a certificate of public convenience or other franchise. To exempt private respondent from the
liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would
be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with
applicable statutory requirements. The business of a common carrier impinges directly and intimately upon the
safety and well being and property of those members of the general community who happen to deal with such
carrier. The law imposes duties and liabilities upon common carriers for the safety and protection of those who
utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely
facultative by simply failing to obtain the necessary permits and authorizations.

We turn then to the liability of private respondent as a common carrier.

Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high
degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The
specific import of extraordinary diligence in the care of goods transported by a common carrier is, according to
Article 1733, "further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.

Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or
deterioration of the goods which they carry, "unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the
common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they
appear to constitute a species of force majeure fall within the scope of Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence as required in Article 1733. (Emphasis supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant
case — the hijacking of the carrier's truck — does not fall within any of the five (5) categories of exempting causes
listed in Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under
the provisions of Article 1735, in other words, that the private respondent as common carrier is presumed to have
been at fault or to have acted negligently. This presumption, however, may be overthrown by proof of
extraordinary diligence on the part of private respondent.

Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's
goods. Petitioner argues that in the circumstances of this case, private respondent should have hired a security
guard presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however,
that in the instant case, the standard of extraordinary diligence required private respondent to retain a security
guard to ride with the truck and to engage brigands in a firelight at the risk of his own life and the lives of the driver
and his helper.

The precise issue that we address here relates to the specific requirements of the duty of extraordinary diligence
in the vigilance over the goods carried in the specific context of hijacking or armed robbery.

As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given
additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article
1745 provides in relevant part:

Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:

xxx xxx xxx

(5) that the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6) that the common carrier's liability for acts committed by thieves, or of robbers who donot act with grave or
irresistible threat, violence or force, is dispensed with or diminished; and

(7) that the common carrier shall not responsible for the loss, destruction or deterioration of goods on account of
the defective condition of the car vehicle, ship, airplane or other equipment used in the contract of carriage.
(Emphasis supplied)

Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to divest or to
diminish such responsibility — even for acts of strangers like thieves or robbers, except where such thieves or
robbers in fact acted "with grave or irresistible threat, violence or force." We believe and so hold that the limits of
the duty of extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as
a result of a robbery which is attended by "grave or irresistible threat, violence or force."

In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's
cargo. The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac,
Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno,
Armando Mesina, Oscar Oria and one John Doe." There, the accused were charged with willfully and unlawfully
taking and carrying away with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons
of Liberty filled milk destined for delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial
court shows that the accused acted with grave, if not irresistible, threat, violence or force.3 Three (3) of the five (5)
hold-uppers were armed with firearms. The robbers not only took away the truck and its cargo but also kidnapped
the driver and his helper, detaining them for several days and later releasing them in another province (in
Zambales). The hijacked truck was subsequently found by the police in Quezon City. The Court of First Instance
convicted all the accused of robbery, though not of robbery in band.  4

In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the
control of the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even
common carriers are not made absolute insurers against all risks of travel and of transport of goods, and are not
held liable for acts or events which cannot be foreseen or are inevitable, provided that they shall have complied
with the rigorous standard of extraordinary diligence.

We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable
for the value of the undelivered merchandise which was lost because of an event entirely beyond private
respondent's control.

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals
dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

2. G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner, 
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA, respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party1 between a shipowner and a charterer transform a common carrier into a private one as to
negate the civil law presumption of negligence in case of loss or damage to its cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of New York,
U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in bulk on 16 June 1974
aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK)
from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading
No. KP-1 signed by the master of the vessel and issued on the date of departure.

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the
Uniform General Charter2 was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner, in
Tokyo, Japan.3 Riders to the aforesaid charter-party starting from par. 16 to 40 were attached to the pre-printed
agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the 18th,
20th, 21st and 27th of May 1974, respectively.

Before loading the fertilizer aboard the vessel, four (4) of her holds4 were all presumably inspected by the
charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charter-party which
reads:

16. . . . At loading port, notice of readiness to be accomplished by certificate from National Cargo Bureau
inspector or substitute appointed by charterers for his account certifying the vessel's readiness to receive cargo
spaces. The vessel's hold to be properly swept, cleaned and dried at the vessel's expense and the vessel to be
presented clean for use in bulk to the satisfaction of the inspector before daytime commences . (emphasis
supplied)

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper, the
steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with steel
bonds. The hatches remained closed and tightly sealed throughout the entire voyage.5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with the use
of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump trucks which were
parked alongside the berth, using metal scoops attached to the ship, pursuant to the terms and conditions of the
charter-partly (which provided for an F.I.O.S. clause).6 The hatches remained open throughout the duration of the
discharge.7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was transported to the
consignee's warehouse located some fifty (50) meters from the wharf. Midway to the warehouse, the trucks were
made to pass through a weighing scale where they were individually weighed for the purpose of ascertaining the
net weight of the cargo. The port area was windy, certain portions of the route to the warehouse were sandy and
the weather was variable, raining occasionally while the discharge was in progress. 8 The petitioner's warehouse
was made of corrugated galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered
and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between and
alongside the trucks to contain spillages of the ferilizer.9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and
18th).10A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by PPI to
determine the "outturn" of the cargo shipped, by taking draft readings of the vessel prior to and after
discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage
in the cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was contaminated with
dirt. The same results were contained in a Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared
by PPI which showed that the cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered
unfit for commerce, having been polluted with sand, rust and 
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA), the
resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in the goods
shipped and the diminution in value of that portion said to have been contaminated with dirt. 13

Respondent SSA explained that they were not able to respond to the consignee's claim for payment because,
according to them, what they received was just a request for shortlanded certificate and not a formal claim, and
that this "request" was denied by them because they "had nothing to do with the discharge of the
shipment." 14 Hence, on 18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila.
The defendant carrier argued that the strict public policy governing common carriers does not apply to them
because they have become private carriers by reason of the provisions of the charter-party. The court a
quo however sustained the claim of the plaintiff against the defendant carrier for the value of the goods lost or
damaged when it ruled thus: 15

. . . Prescinding from the provision of the law that a common carrier is presumed negligent in case of loss or
damage of the goods it contracts to transport, all that a shipper has to do in a suit to recover for loss or damage is
to show receipt by the carrier of the goods and to delivery by it of less than what it received.  After that, the burden
of proving that the loss or damage was due to any of the causes which exempt him from liability is shipted to the
carrier, common or private he may be. Even if the provisions of the charter-party aforequoted are deemed valid,
and the defendants considered private carriers,  it was still incumbent upon them to prove that the shortage or
contamination sustained by the cargo is attributable to the fault or negligence on the part of the shipper or
consignee in the loading, stowing, trimming and discharge of the cargo. This they failed to do. By this omission,
coupled with their failure to destroy the presumption of negligence against them, the defendants are liable
(emphasis supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for the
value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance Co.  v. American
Steamship Agencies, Inc.,17 the appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private
respondent KKKK was a private carrier and not a common carrier by reason of the time charterer-party.
Accordingly, the Civil Code provisions on common carriers which set forth a presumption of negligence do not find
application in the case at bar. Thus —

. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to adduce sufficient
evidence to prove the negligence of the defendant carrier  as alleged in its complaint. It is an old and well settled
rule that if the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory
manner the facts upon which he bases his claim, the defendant is under no obligation to prove his exception or
defense (Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).

But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause of action, i .e.  the
alleged negligence of defendant carrier. It appears that the plaintiff was under the impression that it did not have
to establish defendant's negligence. Be that as it may, contrary to the trial court's finding, the record of the instant
case discloses ample evidence showing that defendant carrier was not negligent in performing its
obligation . . . 18 (emphasis supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals.
Petitioner theorizes that the Home Insurance case has no bearing on the present controversy because the issue
raised therein is the validity of a stipulation in the charter-party delimiting the liability of the shipowner for loss or
damage to goods cause by want of due deligence on its part or that of its manager to make the vessel seaworthy
in all respects, and not whether the presumption of negligence provided under the Civil Code applies only to
common carriers and not to private carriers. 19 Petitioner further argues that since the possession and control of
the vessel remain with the shipowner, absent any stipulation to the contrary, such shipowner should made liable
for the negligence of the captain and crew. In fine, PPI faults the appellate court in not applying the presumption
of negligence against respondent carrier, and instead shifting the onus probandi on the shipper to show want of
due deligence on the part of the carrier, when he was not even at hand to witness what transpired during the
entire voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by reason of a
charter-party; in the negative, whether the shipowner in the instant case was able to prove that he had exercised
that degree of diligence required of him under the law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we find it
fitting to first define important terms which are relevant to our discussion.

A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; 20 a contract of affreightment by which the owner of a ship or
other vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels leased by the owner in part or as a whole, to
carry goods for others; and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel is
let to the charterer with a transfer to him of its entire command and possession and consequent control over its
navigation, including the master and the crew, who are his servants. Contract of affreightment may either be time
charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship
is leased for a single voyage. 22 In both cases, the charter-party provides for the hire of vessel only, either for a
determinate period of time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for
the wages of the master and the crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The definition
extends to carriers either by land, air or water which hold themselves out as ready to engage in carrying goods or
transporting passengers or both for compensation as a public employment and not as a casual occupation. The
distinction between a "common or public carrier" and a "private or special carrier" lies in the character of the
business, such that if the undertaking is a single transaction, not a part of the general business or occupation,
although involving the carriage of goods for a fee, the person or corporation offering such service is a private
carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their business,
should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case of private carriers,
however, the exercise of ordinary diligence in the carriage of goods will suffice. Moreover, in the case of loss,
destruction or deterioration of the goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them. 26 On the contrary, no such presumption applies to
private carriers, for whosoever alleges damage to or deterioration of the goods carried has the onus of proving
that the cause was the negligence of the carrier.

It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier,
transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum", the ship
captain, its officers and compliment were under the employ of the shipowner and therefore continued to be under
its direct supervision and control. Hardly then can we charge the charterer, a stranger to the crew and to the ship,
with the duty of caring for his cargo when the charterer did not have any control of the means in doing so. This is
evident in the present case considering that the steering of the ship, the manning of the decks, the determination
of the course of the voyage and other technical incidents of maritime navigation were all consigned to the officers
and crew who were screened, chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or
portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a
time-charter or voyage-charter. It is only when the charter includes both the vessel and its crew, as in a bareboat
or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-
party is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and control of the
ship, although her holds may, for the moment, be the property of the charterer. 28

Respondent carrier's heavy reliance on the case of Home Insurance Co. v.  American Steamship Agencies,
supra, is misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the
charter-party exempting the shipowners from liability for loss due to the negligence of its agent, and not the effects
of a special charter on common carriers. At any rate, the rule in the United States that a ship chartered by a single
shipper to carry special cargo is not a common carrier, 29 does not find application in our jurisdiction, for we have
observed that the growing concern for safety in the transportation of passengers and /or carriage of goods by sea
requires a more exacting interpretation of admiralty laws, more particularly, the rules governing common carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30 —

As a matter of principle, it is difficult to find a valid distinction between cases in which a ship is used to convey the
goods of one and of several persons. Where the ship herself is let to a charterer, so that he takes over the charge
and control of her, the case is different; the shipowner is not then a carrier. But where her services only are let,
the same grounds for imposing a strict responsibility exist, whether he is employed by one or many. The master
and the crew are in each case his servants, the freighter in each case is usually without any representative on
board the ship; the same opportunities for fraud or collusion occur; and the same difficulty in discovering the truth
as to what has taken place arises . . .

In an action for recovery of damages against a common carrier on the goods shipped, the shipper or consignee
should first prove the fact of shipment and its consequent loss or damage while the same was in the possession,
actual or constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to prove that he has
exercised extraordinary diligence required by law or that the loss, damage or deterioration of the cargo was due to
fortuitous event, or some other circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the  prima
faciepresumption of negligence.

The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the
Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that before the fertilizer
was loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated. After completing the loading of
the cargo in bulk in the ship's holds, the steel pontoon hatches were closed and sealed with iron lids, then
covered with three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches remained
close and tightly sealed while the ship was in transit as the weight of the steel covers made it impossible for a
person to open without the use of the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility of
spillage of the cargo into the sea or seepage of water inside the hull of the vessel. 33 When M/V "Sun Plum"
docked at its berthing place, representatives of the consignee boarded, and in the presence of a representative of
the shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and
inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of
the shipmates who were overseeing the whole operation on rotation basis. 34

Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome by
the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. This was
confirmed by respondent appellate court thus —

. . . Be that as it may, contrary to the trial court's finding, the record of the instant case discloses ample evidence
showing that defendant carrier was not negligent in performing its obligations. Particularly, the following
testimonies of plaintiff-appellee's own witnesses clearly show absence of negligence by the defendant carrier; that
the hull of the vessel at the time of the discharge of the cargo was sealed and nobody could open the same
except in the presence of the owner of the cargo and the representatives of the vessel (TSN, 20 July 1977, p. 14);
that the cover of the hatches was made of steel and it was overlaid with tarpaulins, three layers of tarpaulins and
therefore their contents were protected from the weather (TSN, 5 April 1978, p. 24); and, that to open these
hatches, the seals would have to be broken, all the seals were found to be intact (TSN, 20 July 1977, pp. 15-16)
(emphasis supplied).

The period during which private respondent was to observe the degree of diligence required of it as a public
carrier began from the time the cargo was unconditionally placed in its charge after the vessel's holds were duly
inspected and passed scrutiny by the shipper, up to and until the vessel reached its destination and its hull was
reexamined by the consignee, but prior to unloading. This is clear from the limitation clause agreed upon by the
parties in the Addendum to the standard "GENCON" time charter-party which provided for an F.I.O.S., meaning,
that the loading, stowing, trimming and discharge of the cargo was to be done by the charterer, free from all risk
and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper
stowage only when the stowing is done by stevedores employed by him, and therefore under his control and
supervision, not when the same is done by the consignee or stevedores under the employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss, destruction or
deterioration of the goods if caused by the charterer of the goods or defects in the packaging or in the containers.
The Code of Commerce also provides that all losses and deterioration which the goods may suffer during the
transportation by reason of fortuitous event,  force majeure, or the inherent defect of the goods, shall be for the
account and risk of the shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier,
nonetheless, shall be liable for the loss and damage resulting from the preceding causes if it is proved, as against
him, that they arose through his negligence or by reason of his having failed to take the precautions which usage
has established among careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and the
expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working with Atlas Fertilizer,
described Urea as a chemical compound consisting mostly of ammonia and carbon monoxide compounds which
are used as fertilizer. Urea also contains 46% nitrogen and is highly soluble in water. However, during storage,
nitrogen and ammonia do not normally evaporate even on a long voyage, provided that the temperature inside the
hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in
bulk with the use of a clamped shell, losses due to spillage during such operation amounting to one percent (1%)
against the bill of lading is deemed "normal" or "tolerable." The primary cause of these spillages is the clamped
shell which does not seal very tightly. Also, the wind tends to blow away some of the materials during the
unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely high
temperature in its place of storage, or when it comes in contact with water. When Urea is drenched in water,
either fresh or saline, some of its particles dissolve. But the salvaged portion which is in liquid form still remains
potent and usable although no longer saleable in its original market value.

The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was made
greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the inimical effects of the
elements and the grimy condition of the various pieces of equipment used in transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into the
vessel's holds during the voyage since the hull of the vessel was in good condition and her hatches were tightly
closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy to carry the cargo she was
chartered for. If there was loss or contamination of the cargo, it was more likely to have occurred while the same
was being transported from the ship to the dump trucks and finally to the consignee's warehouse. This may be
gleaned from the testimony of the marine and cargo surveyor of CSCI who supervised the unloading. He
explained that the 18 M/T of alleged "bar order cargo" as contained in their report to PPI was just an
approximation or estimate made by them after the fertilizer was discharged from the vessel and segregated from
the rest of the cargo.

The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It rained
from time to time at the harbor area while the cargo was being discharged according to the supply officer of PPI,
who also testified that it was windy at the waterfront and along the shoreline where the dump trucks passed
enroute to the consignee's warehouse.

Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries with it the
risk of loss or damage. More so, with a variable weather condition prevalent during its unloading, as was the case
at bar. This is a risk the shipper or the owner of the goods has to face. Clearly, respondent carrier has sufficiently
proved the inherent character of the goods which makes it highly vulnerable to deterioration; as well as the
inadequacy of its packaging which further contributed to the loss. On the other hand, no proof was adduced by the
petitioner showing that the carrier was remise in the exercise of due diligence in order to minimize the loss or
damage to the goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the trial
court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First Instance, now Regional
Trial Court, of Manila should be, as it is hereby DISMISSED.

Costs against petitioner.

SO ORDERED. 

# Footnotes

1 A charter-party is a contract by which an entire ship or some principal part thereof, is let by the owner to another
person for a specified time or use (70 Am Jur 2d, 
p. 580, citing Ward v. Thompson, 63 US 330, 16 L Ed 249; a contract in which the owner of a vessel lets for
consideration the whole or part thereof for the conveyance of goods and/or passengers on a particular voyage to
one or more places or until the expiration of a specified time and surrender unto the lessee or charterer the
control, by vesting upon the latter the right to appoint the captain, officers and members of the crew, of the vessel
leased or chartered during the duration of the contract (R.A. 913).

2 The Baltic and International Maritime Uniform General Charter (As Revised 1922 and 1976), Including "F.I.O.S."
Alternative, etc., Code Name: "GENCON" Adopted by the Documentary Committee of the General Council of
British Shipping, London, and the Documentary Committee of the Japan Shipping Exchange, Inc., Tokyo.

3 Rollo, pp. 105, 128.

25 Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported
by them, according to all the circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further expressed in Arts. 1734, 1735 and 1745,
Nos. 5, 6 and 7, while the extraordinary diligence for the safety of the passengers is further set forth in Arts. 1755
and 1756.

26 Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article, if the goods
are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as required in article 1733.

3. G.R. No. L-8095             March 31, 1915

F.C. FISHER, plaintiff, 
vs.
YANGCO STEAMSHIP COMPANY, J.S. STANLEY, as Acting Collector of Customs of the Philippine
Islands, IGNACIO VILLAMOR, as Attorney-General of the Philippine Islands, and W.H. BISHOP, as
prosecuting attorney of the city of Manila, respondents.
Haussermann, Cohn and Fisher for plaintiff.
Office of the Solicitor-General Harvey for respondents.
CARSON, J.:
The real question involved in these proceedings is whether the refusal of the owners and officers of a steam
vessel, duly licensed to engage in the coastwise trade of the Philippine Islands and engaged in that trade as a
common carrier, to accept for carriage "dynamite, powder or other explosives" from any and all shippers who may
offer such explosives for carriage can be held to be a lawful act without regard to any question as to the
conditions under which such explosives are offered to carriage, or as to the suitableness of the vessel for the
transportation of such explosives, or as to the possibility that the refusal to accept such articles of commerce in a
particular case may have the effect of subjecting any person or locality or the traffic in such explosives to an
undue, unreasonable or unnecessary prejudice or discrimination.

Summarized briefly, the complaint alleges that plaintiff is a stockholder in the Yangco Steamship Company, the
owner of a large number of steam vessels, duly licensed to engage in the coastwise trade of the Philippine
Islands; that on or about June 10, 1912, the directors of the company adopted a resolution which was thereafter
ratified and affirmed by the shareholders of the company, "expressly declaring and providing that the classes of
merchandise to be carried by the company in its business as a common carrier do not include dynamite, powder
or other explosives, and expressly prohibiting the officers, agents and servants of the company from offering to
carry, accepting for carriage said dynamite, powder or other explosives;" that thereafter the respondent Acting
Collector of Customs demanded and required of the company the acceptance and carriage of such explosives;
that he has refused and suspended the issuance of the necessary clearance documents of the vessels of the
company unless and until the company consents to accept such explosives for carriage; that plaintiff is advised
and believes that should the company decline to accept such explosives for carriage, the respondent Attorney-
General of the Philippine Islands and the respondent prosecuting attorney of the city of Manila intend to institute
proceedings under the penal provisions of sections 4, 5, and 6 of Act No. 98 of the Philippine Commission against
the company, its managers, agents and servants, to enforce the requirements of the Acting Collector of Customs
as to the acceptance of such explosives for carriage; that notwithstanding the demands of the plaintiff stockholder,
the manager, agents and servants of the company decline and refuse to cease the carriage of such explosives,
on the ground that by reason of the severity of the penalties with which they are threatened upon failure to carry
such explosives, they cannot subject themselves to "the ruinous consequences which would inevitably result"
from failure on their part to obey the demands and requirements of the Acting Collector of Customs as to the
acceptance for carriage of explosives; that plaintiff believes that the Acting Collector of Customs erroneously
construes the provisions of Act No. 98 in holding that they require the company to accept such explosives for
carriage notwithstanding the above mentioned resolution of the directors and stockholders of the company, and
that if the Act does in fact require the company to carry such explosives it is to that extent unconstitutional and
void; that notwithstanding this belief of complainant as to the true meaning of the Act, the questions involved
cannot be raised by the refusal of the company or its agents to comply with the demands of the Acting Collector of
Customs, without the risk of irreparable loss and damage resulting from his refusal to facilitate the documentation
of the company's vessels, and without assuming the company to test the questions involved by refusing to accept
such explosives for carriage.

The prayer of the complaint is as follows:

Wherefore your petitioner prays to this honorable court as follows:

First. That to the due hearing of the above entitled action be issued a writ of prohibition perpetually restraining the
respondent Yangco Steamship Company, its appraisers, agents, servants or other representatives from accepting
to carry and from carrying, in steamers of said company dynamite, powder or other explosive substance, in
accordance with the resolution of the board of directors and of the shareholders of said company.

Second. That a writ of prohibition be issued perpetually enjoining the respondent J.S. Stanley as Acting Collector
of Customs of the Philippine Islands, his successors, deputies, servants or other representatives, from obligating
the said Yangco Steamship Company, by any means whatever, to carry dynamite, powder or other explosive
substance.

Third. That a writ of prohibition be issued perpetually enjoining the respondent Ignacio Villamor as Attorney-
General of the Philippine Islands, and W.H. Bishop as prosecuting attorney of the city of Manila, their deputies
representatives or employees, from accusing the said Yangco Steamship Company, its officers, agents or
servants, of the violation of Act No. 98 by reason of the failure or omission of the said company to accept for
carriage out to carry dynamite powder or other explosive.

Fourth. That the petitioner be granted such other remedy as may be meet and proper.

To this complaint the respondents demurred, and we are of opinion that the demurrer must be sustained, on the
ground that the complaint does not set forth facts sufficient to constitute a cause of action.

It will readily be seen that plaintiff seeks in these proceedings to enjoin the steamship company from accepting for
carriage on any of its vessels, dynamite, powder or other explosives, under any conditions whatsoever; to prohibit
the Collector of Customs and the prosecuting officers of the government from all attempts to compel the company
to accept such explosives for carriage on any of its vessels under any conditions whatsoever; and to prohibit
these officials from any attempt to invoke the penal provisions of Act No. 98, in any case of a refusal by the
company or its officers so to do; and this without regard to the conditions as to safety and so forth under which
such explosives are offered for carriage, and without regard also to any question as to the suitableness for the
transportation of such explosives of the particular vessel upon which the shipper offers them for carriage; and
further without regard to any question as to whether such conduct on the part of the steamship company and its
officers involves in any instance an undue, unnecessary or unreasonable discrimination to the prejudice of any
person, locality or particular kind of traffic.

There are no allegations in the complaint that for some special and sufficient reasons all or indeed any of the
company's vessels are unsuitable for the business of transporting explosives; or that shippers have declined or
will in future decline to comply with such reasonable regulations and to take such reasonable precautions as may
be necessary and proper to secure the safety of the vessels of the company in transporting such explosives.
Indeed the contention of petitioner is that a common carrier in the Philippine Islands may decline to accept for
carriage any shipment of merchandise of a class which it expressly or impliedly declines to accept from all
shippers alike, because as he contends "the duty of a common carrier to carry for all who offer arises from the
public profession he has made, and limited by it."

In support of this contention counsel cites for a number of English and American authorities, discussing and
applying the doctrine of the common law with reference to common carriers. But it is unnecessary now to decide
whether, in the absence of statute, the principles on which the American and English cases were decided would
be applicable in this jurisdiction. The duties and liabilities of common carriers in this jurisdiction are defined and
fully set forth in Act No. 98 of the Philippine Commission, and until and unless that statute be declared invalid or
unconstitutional, we are bound by its provisions.

Sections 2, 3 and 4 of the Act are as follows:

SEC. 2. It shall be unlawful for any common carrier engaged in the transportation of passengers or property as
above set forth to make or give any unnecessary or unreasonable preference or advantage to any particular
person, company, firm, corporation or locality, or any particular kind of traffic in any respect whatsoever, or to
subject any particular person, company, firm, corporation or locality, or any particular kind of traffic, to undue or
unreasonable prejudice or discrimination whatsoever, and such unjust preference or discrimination is also hereby
prohibited and declared to be unlawful.

SEC. 3. No common carrier engaged in the carriage of passengers or property as aforesaid shall, under any
pretense whatsoever, fail or refuse to receive for carriage, and as promptly as it is able to do so without
discrimination, to carry any person or property offering for carriage, and in the order in which such persons or
property are offered for carriage, nor shall any such common carrier enter into any arrangement, contract or
agreement with any other person or corporation whereby the latter is given an exclusive or preferential or
monopolize the carriage any class or kind of property to the exclusion or partial exclusion of any other person or
persons, and the entering into any such arrangement, contract or agreement, under any form or pretense
whatsoever, is hereby prohibited and declared to be unlawful.

SEC. 4. Any willful violation of the provisions of this Act by any common carrier engaged in the transportation of
passengers or property as hereinbefore set forth is hereby declared to be punishable by a fine not exceeding five
thousand dollars money of the United States, or by imprisonment not exceeding two years, or both, within the
discretion of the court.

The validity of this Act has been questioned on various grounds, and it is vigorously contended that in so far as it
imposes any obligation on a common carrier to accept for carriage merchandise of a class which he makes no
public profession to carry, or which he has expressly or impliedly announced his intention to decline to accept for
carriage from all shippers alike, it is ultra vires, unconstitutional and void.

We may dismiss without extended discussion any argument or contention as to the invalidity of the statute based
on alleged absurdities inherent in its provisions or on alleged unreasonable or impossible requirements which
may be read into it by a strained construction of its terms.

We agree with counsel for petitioner that the provision of the Act which prescribes that, "No common carrier ...
shall, under any pretense whatsoever, fail or refuse to receive for carriage ... to carry any person or property
offering for carriage," is not to be construed in its literal sense and without regard to the context, so as to impose
an imperative duty on all common carriers to accept for carriage, and to carry all and any kind of freight which
may be offered for carriage without regard to the facilities which they may have at their disposal. The legislator
could not have intended and did not intend to prescribe that a common carrier running passenger automobiles for
hire must transport coal in his machines; nor that the owner of a tank steamer, expressly constructed in small
watertight compartments for the carriage of crude oil must accept common carrier must accept and carry
contraband articles, such as opium, morphine, cocaine, or the like, the mere possession of which is declared to be
a criminal offense; nor that common carriers must accept eggs offered for transportation in paper parcels or any
merchandise whatever do defectively packed as to entail upon the company unreasonable and unnecessary care
or risks.

Read in connection with its context this, as well as all the other mandatory and prohibitory provisions of the
statute, was clearly intended merely to forbid failures or refusals to receive persons or property for carriage
involving any "unnecessary or unreasonable preference or advantage to any particular person, company, firm,
corporation, or locality, or any particular kind of traffic in any respect whatsoever," or which would "subject any
particular person, company, firm, corporation or locality, or any particular kind of traffic to any undue or
unreasonable prejudice or discrimination whatsoever."

The question, then, of construing and applying the statute, in cases of alleged violations of its provisions, always
involves a consideration as to whether the acts complained of had the effect of making or giving an "unreasonable
or unnecessary preference or advantage" to any person, locality or particular kind of traffic, or of subjecting any
person, locality, or particular kind of traffic to any undue or unreasonable prejudice or discrimination. It is very
clear therefore that the language of the statute itself refutes any contention as to its invalidity based on the alleged
unreasonableness of its mandatory or prohibitory provisions.

So also we may dismiss without much discussion the contentions as to the invalidity of the statute, which are
based on the alleged excessive severity of the penalties prescribed for violation of its provisions. Upon general
principles it is peculiarly and exclusively within the province of the legislator to prescribe the pains and penalties
which may be imposed upon persons convicted of violations of the laws in force within his territorial jurisdiction.
With the exercise of his discretion in this regard where it is alleged that excessive fines or cruel and unusual
punishments have been prescribed, and even in such cases the courts will not presume to interfere in the
absence of the clearest and most convincing argument and proof in support of such contentions.
(Weems vs. United States, 217 U.S., 349; U.S. vs.Pico, 18 Phil. Rep., 386.) We need hardly add that there is no
ground upon which to rest a contention that the penalties prescribed in the statute under consideration are either
excessive or cruel and unusual, in the sense in which these terms are used in the organic legislation in force in
the Philippine Islands.

But it is contended that on account of the penalties prescribed the statute should be held invalid upon the
principles announced in Ex parte Young (209 U.S., 123, 147, 148); Cotting vs. Goddard (183 U.S., 79, 102);
Mercantile Trust Co. vs. Texas Co. (51 Fed., 529); Louisville Ry. vs. McCord (103 Fed., 216); Cons. Gas
Co. vs. Mayer (416 Fed., 150). We are satisfied however that the reasoning of those cases is not applicable to the
statute under consideration. The principles announced in those decisions are fairly indicated in the following
citations found in petitioner's brief:

But when the legislature, in an effort to prevent any inquiry of the validity of a particular statute, so burdens any
challenge thereof in the courts that the party affected is necessarily constrained to submit rather than take the
chances of the penalties imposed, then it becomes a serious question whether the party is not deprived of the
equal protection of the laws. (Cotting vs. Goddard, 183 U. S., 79, 102.)

It may therefore be said that when the penalties for disobedience are by fines so enormous and imprisonment so
severe as to intimidate the company and its officers from resorting to the courts to test the validity of the
legislation, the result is the same as if the law in terms prohibited the company from seeking judicial construction
of laws which deeply affect its rights.

It is urged that there is no principle upon which to base the claim that a person is entitled to disobey a statute at
least once, for the purpose of testing its validity, without subjecting himself to the penalties for disobedience
provided by the statute in case it is valid. This is not an accurate statement of the case. Ordinarily a law creating
offenses in the nature of misdemeanors or felonies relates to a subject over which the jurisdiction of the
legislature is complete in any event. In the case, however, of the establishment of certain rates without any
hearing, the validity of such rates necessarily depends upon whether they are high enough to permit at least some
return upon the investment (how much it is not now necessary to state), and an inquiry as to that fact is a proper
subject of judicial investigation. If it turns out that the rates are too low for that purpose, then they are illegal. Now,
to impose upon a party interested the burden of obtaining a judicial decision of such a question (no prior hearing
having been given) only upon the condition that, if unsuccessful, he must suffer imprisonment and pay fines, as
provided in these acts, is, in effect, to close up all approaches to the courts, and thus prevent any hearing upon
the question whether the rates as provided by the acts are not too low, and therefore invalid. The distinction is
obvious between a case where the validity of the act depends upon the existence of a fact which can be
determined only after investigation of a very complicated and technical character, and the ordinary case of a
statute upon a subject requiring no such investigation, and over which the jurisdiction of the legislature is
complete in any event.

We hold, therefore, that the provisions of the acts relating to the enforcement of the rates, either for freight or
passengers, by imposing such enormous fines and possible imprisonment as a result of an unsuccessful effort to
test the validity of the laws themselves, are unconstitutional on their face, without regard to the question of the
insufficiency of those rates. (Ex parte Young, 209 U.S., 123 147, 148.)

An examination of the general provisions of our statute, of the circumstances under which it was enacted, the
mischief which it sought to remedy and of the nature of the penalties prescribed for violations of its terms
convinces us that, unlike the statutes under consideration in the above cited cases, its enactment involved no
attempt to prevent common carriers "from resorting to the courts to test the validity of the legislation;" no "effort to
prevent any inquiry" as to its validity. It imposes no arbitrary obligation upon the company to do or to refrain from
doing anything. It makes no attempt to compel such carriers to do business at a fixed or arbitrarily designated
rate, at the risk of separate criminal prosecutions for every demand of a higher or a different rate. Its penalties can
be imposed only upon proof of "unreasonable," "unnecessary" and "unjust" discriminations, and range from a
maximum which is certainly not excessive for willful, deliberate and contumacious violations of its provisions by a
great and powerful corporation, to a minimum which may be a merely nominal fine. With so wide a range of
discretion for a contention on the part of any common carrier that it or its officers are "intimidated from resorting to
the courts to test the validity" of the provisions of the statute prohibiting such "unreasonable," "unnecessary" and
"unjust" discriminations, or to test in any particular case whether a given course of conduct does in fact involve
such discrimination. We will presume, for the purpose of declaring the statute invalid, that there is so real a
danger that the Courts of First Instance and this court on appeal will abuse the discretion thus conferred upon us,
as to intimidate any common carrier, acting in good faith, from resorting to the courts to test the validity of the
statute. Legislative enactments, penalizing unreasonable discriminations, unreasonable restraints of trade, and
unreasonable conduct in various forms of human activity are so familiar and have been so frequently sustained in
the courts, as to render extended discussion unnecessary to refute any contention as to the invalidity of the
statute under consideration, merely it imposes upon the carrier the obligation of adopting one of various courses
of conduct open to it, at the risk of incurring a prescribed penalty in the event that the course of conduct actually
adopted by it should be held to have involved an unreasonable, unnecessary or unjust discrimination. Applying
the test announced in Ex parte Young, supra, it will be seen that the validity of the Act does not depend upon "the
existence of a fact which can be determined only after investigation of a very complicated and technical
character," and that "the jurisdiction of the legislature" over the subject with which the statute deals "is complete in
any event." There can be no real question as to the plenary power of the legislature to prohibit and to penalize the
making of undue, unreasonable and unjust discriminations by common carriers to the prejudice of any person,
locality or particular kind of traffic. (See Munn vs.Illinois, 94 U.S., 113, and other cases hereinafter cited in support
of this proposition.)

Counsel for petitioner contends also that the statute, if construed so as to deny the right of the steamship
company to elect at will whether or not it will engage in a particular business, such as that of carrying explosives,
is unconstitutional "because it is a confiscation of property, a taking of the carrier's property without due process
of law," and because it deprives him of his liberty by compelling him to engage in business against his will. The
argument continues as follows:

To require of a carrier, as a condition to his continuing in said business, that he must carry anything and every
thing is to render useless the facilities he may have for the carriage of certain lines of freight. It would be almost
as complete a confiscation of such facilities as if the same were destroyed. Their value as a means of livelihood
would be utterly taken away. The law is a prohibition to him to continue in business; the alternative is to get out or
to go into some other business — the same alternative as was offered in the case of the Chicago & N.W.
Ry. vs. Dey (35 Fed. Rep., 866, 880), and which was there commented on as follows:

"Whatever of force there may be in such arguments, as applied to mere personal property capable of removal and
use elsewhere, or in other business, it is wholly without force as against railroad corporations, so large a
proportion of whose investment is in the soil and fixtures appertaining thereto, which cannot be removed. For a
government, whether that government be a single sovereign or one of the majority, to say to an individual who
has invested his means in so laudable an enterprise as the construction of a railroad, one which tends so much to
the wealth and prosperity of the community, that, if he finds that the rates imposed will cause him to do business
at a loss, he may quit business, and abandon that road, is the very irony of despotism. Apples of Sodom were fruit
of joy in comparison. Reading, as I do, in the preamble of the Federal Constitution, that it was ordained to
"establish justice," I can never believe that it is within the property of an individual invested in and used for a
purpose in which even the Argus eyes of the police power can see nothing injurious to public morals, public
health, or the general welfare. I read also in the first section of the bill of rights of this state that "all men are by
nature free and equal, and have certain inalienable rights, among which are those of enjoying and defending life
and liberty, acquiring, possessing, and protecting property, and pursuing and obtaining safety and happiness;"
and I know that, while that remains as the supreme law of the state, no legislature can directly or indirectly lay its
withering or destroying hand on a single dollar invested in the legitimate business of transportation." (Chicago &
N.W. Ry. vs. Dey, 35 Fed. Rep., 866, 880.)

It is manifest, however, that this contention is directed against a construction of the statute, which, as we have
said, is not warranted by its terms. As we have already indicated, the statute does not "require of a carrier, as a
condition to his continuing in said business, that he must carry anything and everything," and thereby "render
useless the facilities he may have for the carriage of certain lines of freight." It merely forbids failures or refusals to
receive persons or property for carriage which have the effect of giving an "unreasonable or unnecessary
preference or advantage" to any person, locality or particular kind of traffic, or of subjecting any person, locality or
particular kind of traffic to any undue or unreasonable prejudice or discrimination.

Counsel expressly admits that the statute, "as a prohibition against discrimination is a fair, reasonable and valid
exercise of government," and that "it is necessary and proper that such discrimination be prohibited and
prevented," but he contends that "on the other hand there is no reasonable warrant nor valid excuse for depriving
a person of his liberty by requiring him to engage in business against his will. If he has a rolling boat, unsuitable
and unprofitable for passenger trade, he may devote it to lumber carrying. To prohibit him from using it unless it is
fitted out with doctors and stewards and staterooms to carry passengers would be an invalid confiscation of this
property. A carrier may limit his business to the branches thereof that suit his convenience. If his wagon be old, or
the route dangerous, he may avoid liability for loss of passengers' lives and limbs by carrying freight only. If his
vehicles require expensive pneumatic tires, unsuitable for freight transportation, ha may nevertheless carry
passengers. The only limitation upon his action that it is competent for the governing authority to impose is to
require him to treat all alike. His limitations must apply to all, and they must be established limitations. He cannot
refuse to carry a case of red jusi on the ground that he has carried for others only  jusi that he was green, or blue,
or black. But he can refuse to carry redjusi, if he has publicly professed such a limitation upon his business and
held himself out as unwilling to carry the same for anyone."

To this it is sufficient answer to say that there is nothing in the statute which would deprive any person of his
liberty "by requiring him to engage in business against his will." The prohibitions of the statute against undue,
unnecessary or unreasonable regulations which the legislator has seen fit to prescribe for the conduct of the
business in which the carrier is engaged of his own free will and accord. In so far as the self-imposed limitations
by the carrier upon the business conducted by him, in the various examples given by counsel, do not involve an
unreasonable or unnecessary discrimination the statute would not control his action in any wise whatever. It
operates only in cases involving such unreasonable or unnecessary preferences or discriminations. Thus in the
hypothetical case suggested by the petitioner, a carrier engaged in the carriage of green, blue or black jusi, and
duly equipped therefor would manifestly be guilty of "giving an unnecessary and unreasonable preference to a
particular kind of traffic" and of subjecting to "an undue and reasonable prejudice a particular kind of traffic,"
should he decline to carry red  jusi, to the prejudice of a particular shipper or of those engaged in the manufacture
of that kind of  jusi, basing his refusal on the ground of "mere whim or caprice" or of mere personal convenience.
So a public carrier of passengers would not be permitted under this statute to absolve himself from liability for a
refusal to carry a Chinaman, a Spaniard, an American, a Filipino, or a mestizo by proof that from "mere whim or
caprice or personal scruple," or to suit his own convenience, or in the hope of increasing his business and thus
making larger profits, he had publicly announced his intention not to carry one or other of these classes of
passengers.

The nature of the business of a common carrier as a public employment is such that it is clearly within the power
of the state to impose such just and reasonable regulations thereon in the interest of the public as the legislator
may deem proper. Of course such regulations must not have the effect of depriving an owner of his property
without due process of law, nor of confiscating or appropriating private property without just compensation, nor of
limiting or prescribing irrevocably vested rights or privileges lawfully acquired under a charter or franchise. But
aside from such constitutional limitations, the determination of the nature and extent of the regulations which
should be prescribed rests in the hands of the legislator.

Common carriers exercise a sort of public office, and have duties to perform in which the public is interested.
Their business is, therefore, affected with a public interest, and is subject of public regulation. (New Jersey Steam
Nav. Co. vs. Merchants Bank, 6 How., 344, 382; Munn vs. Illinois, 94 U.S., 113, 130.) Indeed, this right of
regulation is so far beyond question that it is well settled that the power of the state to exercise legislative control
over railroad companies and other carriers "in all respects necessary to protect the public against danger,
injustice and oppression" may be exercised through boards of commissioners. (New York etc. R. Co. vs. Bristol,
151 U.S., 556, 571; Connecticut etc. R. Co. vs. Woodruff, 153 U.S., 689.)

Regulations limiting of passengers the number of passengers that may be carried in a particular vehicle or steam
vessel, or forbidding the loading of a vessel beyond a certain point, or prescribing the number and qualifications of
the personnel in the employ of a common carrier, or forbidding unjust discrimination as to rates, all tend to limit
and restrict his liberty and to control to some degree the free exercise of his discretion in the conduct of his
business. But since the Granger cases were decided by the Supreme Court of the United States no one questions
the power of the legislator to prescribe such reasonable regulations upon property clothed with a public interest as
he may deem expedient or necessary to protect the public against danger, injustice or oppression.
(Munn vs. Illinois, 94 U.S., 113, 130; Chicago etc. R. Co. vs. Cutts, 94 U.S., 155; Budd vs. New York, 143 U.S.,
517; Cotting vs. Goddard, 183 U.S., 79.) The right to enter the public employment as a common carrier and to
offer one's services to the public for hire does not carry with it the right to conduct that business as one pleases,
without regard to the interest of the public and free from such reasonable and just regulations as may be
prescribed for the protection of the public from the reckless or careless indifference of the carrier as to the public
welfare and for the prevention of unjust and unreasonable discrimination of any kind whatsoever in the
performance of the carrier's duties as a servant of the public.
Business of certain kinds, including the business of a common carrier, holds such a peculiar relation to the public
interest that there is superinduced upon it the right of public regulation. (Budd vs. New York, 143 U.S., 517, 533.)
When private property is "affected with a public interest it ceases to be juris privati only." Property becomes
clothed with a public interest when used in a manner to make it of public consequence and affect the community
at large. "When, therefore, one devotes his property to a use in which the public has an interest, he, in effect,
grants to the public an interest in that use, and must submit to be controlled by the public for the common good, to
the extent of the interest he has thus created. He may withdraw his grant by discontinuing the use, but so long as
he maintains the use he must submit to control." (Munn vs. Illinois, 94 U.S., 113; Georgia R. & Bkg. Co. vs. Smith,
128 U.S., 174; Budd vs. New York, 143 U.S., 517; Louisville etc. Ry. Co. vs. Kentucky, 161 U.S., 677, 695.)

Of course this power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation.
Under pretense of regulating fares and freight the state can not require a railroad corporation to carry persons or
property without reward. Nor can it do that which in law amounts to a taking of private property for public use
without just compensation, or without due process of law. (Chicago etc. R. Co. vs. Minnesota, 134 U.S., 418;
Minneapolis Eastern R. Co. vs. Minnesota, 134 U.S., 467.) But the judiciary ought not to interfere with regulations
established and palpably unreasonable as to make their enforcement equivalent to the taking of property for
public use without such compensation as under all the circumstances is just both to the owner and to the public,
that is, judicial interference should never occur unless the case presents, clearly and beyond all doubt, such a
flagrant attack upon the rights of property under the guise of regulations as to compel the court to say that the
regulation in question will have the effect to deny just compensation for private property taken for the public use.
(Chicago etc. R. Co. vs. Wellman, 143 U.S., 339; Smyth vs. Ames, 169 U.S., 466, 524; Henderson Bridge
Co. vs. Henderson City, 173 U.S., 592, 614.)

Under the common law of England it was early recognized that common carriers owe to the public the duty of
carrying indifferently for all who may employ them, and in the order in which application is made, and without
discrimination as to terms. True, they were allowed to restrict their business so as to exclude particular classes of
goods, but as to the kinds of property which the carrier was in the habit of carrying in the prosecution of his
business he was bound to serve all customers alike (State vs. Cincinnati etc. R. Co., 47 Ohio St., 130, 134, 138;
Louisville etc. Ry. Co. vs. Quezon City Coal Co., 13 Ky. L. Rep., 832); and it is to be observed in passing that
these common law rules are themselves regulations controlling, limiting and prescribing the conditions under
which common carriers were permitted to conduct their business. (Munn vs. Illinois, 94 U. S., 113, 133.)

It was found, in the course of time, that the correction of abuses which had grown up with the enormously
increasing business of common carriers necessitated the adoption of statutory regulations controlling the business
of common carriers, and imposing severe and drastic penalties for violations of their terms. In England, the
Railway Clauses Consolidation Act was enacted in 1845, the Railway and Canal Traffic Act in 1854, and since the
passage of those Acts much additional legislation has been adopted tending to limit and control the conduct of
their business by common carriers. In the United States, the business of common carriers has been subjected to
a great variety of statutory regulations. Among others Congress enacted "The Interstate Commerce Act" (1887)
and its amendments, and the Elkins Act as amended (1906); and most if not all of the States of the Union have
adopted similar legislation regulating the business of common carriers within their respective jurisdictions.
Unending litigation has arisen under these statutes and their amendments, but nowhere has the right of the state
to prescribe just and reasonable regulations controlling and limiting the conduct of the business of common
carriers in the public interest and for the general welfare been successfully challenged, though of course there has
been wide divergence of opinion as to the reasonableness, the validity and legality of many of the regulations
actually adopted.

The power of the Philippine legislator to prohibit and to penalize all and any unnecessary or unreasonable
discriminations by common carriers may be maintained upon the same reasoning which justified the enactment by
the Parliament of England and the Congress of the United States of the above mentioned statutes prohibiting and
penalizing the granting of certain preferences and discriminations in those countries. As we have said before, we
find nothing confiscatory or unreasonable in the conditions imposed in the Philippine statute upon the business of
common carriers. Correctly construed they do not force him to engage in any business his will or to make use of
his facilities in a manner or for a purpose for which they are not reasonably adapted. It is only when he offers his
facilities as a common carrier to the public for hire, that the statute steps in and prescribes that he must treat all
alike, that he may not pick and choose which customer he will serve, and, specifically, that he shall not make any
undue or unreasonable preferences or discriminations whatsoever to the prejudice not only of any person or
locality but also of any particular kind of traffic.

The legislator having enacted a regulation prohibiting common carriers from giving unnecessary or unreasonable
preferences or advantages to any particular kind of traffic or subjecting any particular kind of traffic to any undue
or unreasonable prejudice or discrimination whatsoever, it is clear that whatever may have been the rule at the
common law, common carriers in this jurisdiction cannot lawfully decline to accept a particular class of goods for
carriage, to the prejudice of the traffic in those goods, unless it appears that for some sufficient reason the
discrimination against the traffic in such goods is reasonable and necessary. Mere whim or prejudice will not
suffice. The grounds for the discrimination must be substantial ones, such as will justify the courts in holding the
discrimination to have been reasonable and necessary under all circumstances of the case.

The prayer of the petition in the case at bar cannot be granted unless we hold that the refusal of the defendant
steamship company to accept for carriage on any of its vessels "dynamite, gunpowder or other explosives" would
in no instance involve a violation of the provisions of this statute. There can be little doubt, however, that cases
may and will arise wherein the refusal of a vessel "engaged in the coastwise trade of the Philippine Islands as a
common carrier" to accept such explosives for carriage would subject some person, company, firm or corporation,
or locality, or particular kind of traffic to a certain prejudice or discrimination. Indeed it cannot be doubted that the
refusal of a "steamship company, the owner of a large number of vessels" engaged in that trade to receive for
carriage any such explosives on any of its vessels would subject the traffic in such explosives to a manifest
prejudice and discrimination. The only question to be determined therefore is whether such prejudice or
discrimination might in any case prove to be undue, unnecessary or unreasonable.
This of course is, in each case, a question of fact, and we are of the opinion that the facts alleged in the complaint
are not sufficient to sustain a finding in favor of the contentions of the petitioner. It is not alleged in the complaint
that "dynamite, gunpowder and other explosives" can in no event be transported with reasonable safety on board
steam vessels engaged in the business of common carriers. It is not alleged that all, or indeed any of the
defendant steamship company's vessels are unsuited for the carriage of such explosives. It is not alleged that the
nature of the business in which the steamship company is engaged is such as to preclude a finding that a refusal
to accept such explosives on any of its vessels would subject the traffic in such explosives to an undue and
unreasonable prejudice and discrimination.

Plaintiff's contention in this regard is as follows:

In the present case, the respondent company has expressly and publicly renounced the carriage of explosives,
and expressly excluded the same terms from the business it conducts. This in itself were sufficient, even though
such exclusion of explosives were based on no other ground than the mere whim, caprice or personal scruple of
the carrier. It is unnecessary, however, to indulge in academic discussion of a moot question, for the decision not
a carry explosives rests on substantial grounds which are self-evident.

We think however that the answer to the question whether such a refusal to carry explosives involves an
unnecessary or unreasonable preference or advantage to any person, locality or particular kind of traffic or
subjects any person, locality or particular to traffic to an undue or unreasonable prejudice and discrimination is by
no means "self-evident," and that it is a question of fact to be determined by the particular circumstances of each
case.

The words "dynamite, powder or other explosives" are broad enough to include matches, and other articles of like
nature, and may fairly be held to include also kerosene oil, gasoline and similar products of a highly inflammable
and explosive character. Many of these articles of merchandise are in the nature of necessities in any country
open to modern progress and advancement. We are not fully advised as to the methods of transportation by
which they are made commercially available throughout the world, but certain it is that dynamite, gunpowder,
matches, kerosene oil and gasoline are transported on many vessels sailing the high seas. Indeed it is a matter of
common knowledge that common carriers throughout the world transport enormous quantities of these
explosives, on both land and sea, and there can be little doubt that a general refusal of the common carriers in
any country to accept such explosives for carriage would involve many persons, firms and enterprises in utter
ruin, and would disastrously affect the interests of the public and the general welfare of the community.

It would be going to far to say that a refusal by a steam vessel engaged in the business of transporting general
merchandise as a common carrier to accept for carriage a shipment of matches, solely on the ground of the
dangers incident to the explosive quality of this class of merchandise, would not subject the traffic in matches to
an unnecessary, undue or unreasonable prejudice and discrimination without proof that for some special reason
the particular vessel is not fitted to carry articles of that nature. There may be and doubtless are some vessels
engaged in business as common carriers of merchandise, which for lack of suitable deck space or storage rooms
might be justified in declining to carry kerosene oil, gasoline, and similar products, even when offered for carriage
securely packed in cases; and few vessels are equipped to transport those products in bulk. But in any case of a
refusal to carry such products which would subject any person, locality or the traffic in such products would be
necessary to hear evidence before making an affirmative finding that such prejudice or discrimination was or was
not unnecessary, undue or unreasonable. The making of such a finding would involve a consideration of the
suitability of the vessel for the transportation of such products ; the reasonable possibility of danger or disaster
resulting from their transportation in the form and under the conditions in which they are offered for carriage; the
general nature of the business done by the carrier and, in a word, all the attendant circumstances which might
affect the question of the reasonable necessity for the refusal by the carrier to undertake the transportation of this
class of merchandise.

But it is contended that whatever the rule may be as to other explosives, the exceptional power and violence of
dynamite and gunpowder in explosion will always furnish the owner of a vessel with a reasonable excuse for his
failure or refusal to accept them for carriage or to carry them on board his boat. We think however that even as to
dynamite and gunpowder we would not be justified in making such a holding unaided by evidence sustaining the
proposition that these articles can never be carried with reasonable safety on any vessel engaged in the business
of a common carrier. It is said that dynamite is so erratic an uncontrollable in its action that it is impossible to
assert that it can be handled with safety in any given case. On the other hand it is contended that while this may
be true of some kinds of dynamite, it is a fact that dynamite can be and is manufactured so as to eliminate any
real danger from explosion during transportation. These are of course questions of fact upon which we are not
qualified to pass judgment without the assistance of expert witnesses who have made special studies as to the
chemical composition and reactions of the different kinds of dynamite, or attained a thorough knowledge of its
properties as a result of wide experience in its manufacture and transportation.

As we construe the Philippine statute, the mere fact that violent and destructive explosions can be obtained by the
use of dynamite under certain conditions would not be sufficient in itself to justify the refusal of a vessel, duly
licensed as a common carrier of merchandise, to accept it for carriage, if it can be proven that in the condition in
which it is offered for carriage there is no real danger to the carrier, nor reasonable ground to fear that his vessel
or those on board his vessel will be exposed to unnecessary and unreasonable risk in transporting it, having in
mind the nature of his business as a common carrier engaged in the coastwise trade in the Philippine Islands, and
his duty as a servant of the public engaged in a public employment. So also, if by the exercise of due diligence
and the taking of unreasonable precautions the danger of explosions can be practically eliminated, the carrier
would not be justified in subjecting the traffic in this commodity to prejudice or discrimination by proof that there
would be a possibility of danger from explosion when no such precautions are taken.

The traffic in dynamite, gunpowder and other explosives is vitally essential to the material and general welfare of
the people of these Islands. If dynamite, gunpowder and other explosives are to continue in general use
throughout the Philippines, they must be transported by water from port to port in the various islands which make
up the Archipelago. We are satisfied therefore that the refusal by a particular vessel, engaged as a common
carrier of merchandise in the coastwise trade of the Philippine Islands, to accept any or all of these explosives for
carriage would constitute a violation of the prohibitions against discriminations penalized under the statute, unless
it can be shown by affirmative evidence that there is so real and substantial a danger of disaster necessarily
involved in the carriage of any or all of these articles of merchandise as to render such refusal a due or a
necessary or a reasonable exercise of prudence and discretion on the part of the shipowner.

The complaint in the case at bar lacking the necessary allegations under this ruling, the demurrer must be
sustained on the ground that the facts alleged do not constitute a cause of action.

A number of interesting questions of procedure are raised and discussed in the briefs of counsel. As to all of these
questions we expressly reserve our opinion, believing as we do that in sustaining the demurrer on the grounds
indicated in this opinion we are able to dispose of the real issue involved in the proceedings without entering upon
the discussion of the nice questions which it might have been necessary to pass upon had it appeared that the
facts alleged in the complaint constitute a cause of action.

We think, however, that we should not finally dispose of the case without indicating that since the institution of
these proceedings the enactment of Acts No. 2307 and No. 2362 (creating a Board of Public Utility
Commissioners and for other purposes) may have materially modified the right to institute and maintain such
proceedings in this jurisdiction. But the demurrer having been formallly submitted for judgment before the
enactment of these statutes, counsel have not been heard in this connection. We therefore refrain from any
comment upon any questions which might be raised as to whether or not there may be another adequate and
appropriate remedy for the alleged wrong set forth in the complaint. Our disposition of the question raised by the
demurrer renders that unnecessary at this time, though it may not be improper to observe that a careful
examination of those acts confirms us in the holding upon which we base our ruling on this demurrer, that is to
say "That whatever may have been the rule at the common law, common carriers in this jurisdiction cannot
lawfully decline to accept a particular class of goods for carriage, to the prejudice of the traffic in those goods,
unless it appears that for some sufficient reason the discrimination against the traffic in such goods is reasonable
and necessary. Mere prejudice or whim will not suffice. The grounds of the discrimination must be substantial
ones, such as will justify the courts in holding the discrimination to have been reasonable and necessary under all
the circumstances of the case."

Unless an amended complaint be filed in the meantime, let judgment be entered ten days hereafter sustaining the
demurrer and dismissing the complaint with costs against the complainant, and twenty days thereafter let the
record be filed in the archives of original actions in this court. So ordered.

Arellano, C.J., and Trent, J., concur.

Torres and Johnson, JJ., concur in the result.

Separate Opinions

MORELAND, J.,  concurring.

I may briefly say, although the nature of the action is stated at length in the foregoing opinion, that it is an action
by a shareholder of the Yangco Steamship Co. against the company itself and certain officials of the Insular
Government for an injunction against the company prohibiting it from carrying dynamite on its ships and
preventing the defendant officials from compelling the company to do so under Act No. 98.

A demurrer was filed to the complaint raising the question not only of its sufficiency in general, but putting in issue
also the right of the plaintiff to maintain the action under the allegations of his complaint.

It should be noted that all of the boats of the defendant company, under the allegations of the complaint, are
boatswhich carry passengers  as well as freight, and that the holding of the opinion which I am discussing
compelspassenger ships to carry dynamite and all other high explosives when offered for shipment. (See
paragraph 3 of the complaint.)

I base my opinion for a dismissal of the complaint on the ground that the plaintiff has not alleged in his complaint a
single one of the grounds, apart from that of being a stockholder, necessary for him to allege to maintain a
shareholder's action.

In the case of Hawes vs. Oakland (104 U.S., 450) it was said relative to the right of a stockholder to bring an
action which should regularly be bought by the company of which he is a stockholder:

We understand that doctrine to be that, to enable a stockholder in a corporation to sustain in a court of equity in
his own name, a suit founded on a right of action existing in the corporation itself, and in which the corporation
itself is the appropriate plaintiff, there must exist as the foundation of the suit:

Some action or threatened action of the managing board of directors or trustees of the corporation, which is
beyond the authority conferred on them by their character or other source of organization;

Or such a fraudulent transaction, completed or contemplated by the acting managers, in connection with some
other party, or among themselves, or with other shareholders as will in serious injury to the corporation, or to the
interest of the other shareholders;

Or where the board of directors, or a majority of them, are acting for their own interest, in a manner destructive of
the corporation itself, or of the rights of the other shareholders;
Or where the majority of shareholders themselves are oppressively and illegally pursuing a course in the name of
the corporation, which is in violation of the rights of the other shareholders, and which can only be restrained by
the aid of a court of equity.

It was also said: "In this country the cases outside of the Federal Courts are not numerous, and while they admit
the right of a stockholder to sue in cases where the corporation is the proper party to bring the suit, they limit this
right to cases where the directors are guilty of a fraud or a breach of trust, or are proceeding ultra vires."

Further on in the same case we find: "Conceding appellant's construction of the company's charter to be correct,
there is nothing which forbids the corporation from dealing with the city in the manner it has done. That city
conferred on the company valuable rights by special ordinance; namely, the use of the streets for the laying of its
pipes, and the privilege of furnishing water to the whole population.

It may be the exercise of the highest wisdom, to let the city use the water in the manner complained of. The
directors are better able to act understandingly on this subject than a stockholder residing in New York. The great
body of the stockholders residing in Oakland or other places in California may take this view of it, and be content
to abide by the action of their directors."

This case is conclusive of the right of the plaintiff in the case at bar to maintain the action. The complaint is devoid
of allegations necessary to sustain a complaint by a shareholder.

The contention of the plaintiff based upon the case of Ex parte Young (209 U.S. 123) is not sustained by that
case. The decision there requires precisely the same allegations in the complaint as does the case of
Hawes vs. Oakland. Not one of those allegations appears in the complaint in the case at bar except the allegation
that the plaintiff is a stockholder.

Indeed, not only does the complaint lack allegations essential to its sufficiency, but it contains allegations which
affirmatively show the plaintiff is not entitled to maintain the action. I do not stop to enumerate them all. I call
attention to one only, namely the allegation that the company, by its authorized officials, has acted in strict
conformity with the plaintiff's wishes and has refused to accept dynamite for carriage. This allegation shows that
the plaintiff has been able to obtain his remedy and accomplish his purpose within the corporation itself, and it is
sufficient, therefore, under the case of Hawes vs. Oakland and that of Ex parte Young, to require that the
demurrer be sustained.

I am opposed to a decision of this case on the merits.

In the first place, there has been no adequate discussion of the merits by the parties. Substantially all of the brief
of the government was devoted to what may be called the technical defects of the complaint, such as I have
referred to above. Indeed, it is doubtful if any portion of the brief can be said to be directly a discussion of the
merits.

In the second place, there is no real pending in this court. It is clear from the complaint that the case is a collusive
one (not in any improper sense) between the plaintiff and the defendant company. There is no reason found in the
complaint why the company should not have brought the action itself, every member of the board of directors and
every stockholder, according to the allegations of the complaint, being in absolute accord with the contentions of
the plaintiff on the proposition that the company should not carry dynamite, and having passed unanimously
resolutions to that effect. Moreover, there has been no violation of Act No. 98. No shipper, or any other person,
has offered dynamite to the defendant company for shipment, and, accordingly, the defendant company has not
refused t o accept dynamite for carriage. Nor have the defendant government officials begun proceedings, or
threatened to bring proceedings, against the defendant company in any given case. According to the allegations
of the complaint, the parties are straw parties and the case a straw case.

In the third place, Act No. 98, under which this proceeding is brought and under which, it is alleged, the defendant
public officers are threatening to enforce, has been repealed, in so far as it affects public service corporations, by
Act No. 2307, as amended by Act No. 2362. More than that; not only has the law been repealed, but proceedings
of this character have been placed, in the first instance, under the exclusive jurisdiction of the Board of Public
Utilities. I am unable to see why this court should, under the facts of this case, undertake to render a decision on
the merits when the Act under which it is brought has been repealed and the jurisdiction to render a decision on
the subject matter involved has been turned over to another body. As I have said before, it was unnecessary to a
decision of this case to touch the merits in any way; and I am opposed to an attempt to lay down a doctrine on a
subject which is within the exclusive jurisdiction of another body created by law expressly for the purpose of
removing such cases as this from the jurisdiction of the courts.

I am of the opinion that the complaint should be dismissed, but upon grounds apart from the merits. If the merits
of the case were alone to govern, I should be distinctly in favor of the plaintiff's contention so far as it relates to the
carriage of dynamite on ships carrying passengers; and, while I am opposed to a decision on the merits of this
case, nevertheless, the merits having been brought into the case by the opinion of some of my brethren, I desire
to refer briefly to the jurisprudence of the subject.

So far as my researches go, the proposition that  passenger boats must carry dynamite and other high explosives
is without support in the decisions of any English speaking country. I have been unable to find a case anywhere
which lays down such a doctrine. Indeed, I have been unable to find a case which holds
that freight boats must carry dynamite or other high explosives. Every case that I have been able to find states a
contrary doctrine; and neither in courts nor in text books is there even a hint supporting the contention of my
brethren. The opinion cites no authorities to support it; and I am constrained to believe that, in any opinion so
elaborately written, cases to support its thesis would have been cited if any such existed.

On page 372, Vol. 6 of Cyc., will be found the following: "Common carriers owe to the public the duty of carrying
indifferently for all who may employ them, and in the order in which the application is made, and without
discrimination as to terms. They may, however, restrict their business so as to exclude particular classes of
goods, and they are not bound to receive dangerous articles, such as nitro-glycerine, dynamite, gunpowder, oil of
vitriol, matches, etc."

In the case of California Powder Works vs. Atlantic and Pacific R. R. Co. (113 Cal., 329), it was said: "Nor are the
exemptions contained in the contract of the shipping order void for lack of consideration. The defendant was not
obliged to received and transport the powder at all. A common carrier is not bound to receive ... dangerous
articles, as nitro-glycerine, dynamite, gunpowder, aqua fortis, oil of vitriol, matches, etc."

This, so far as I can learn, is the universal doctrine. The California case is reproduced in 36 L.R.A., 648 and has
appended to it a note. It is well known that the L.R.A. cites in its notes all of the cases reasonably obtainable
relative to the subject matter of the case which it annotates. The note in L.R.A. with reference to the California
case cites a considerable number of authorities holding that a carrier of goods is not obliged to receive dynamite
or other dangerous explosives for carriage. It does not cite or refer to a case which holds the contrary.

The reporter of the L.R.A, at the beginning of the note with reference to the California case, says: "The law upon
this question is to be drawn from inference or from dicta rather than from decided cases. California Powder
Works vs.Atlantic & Pacific R. R. Co. seems to be the first case to have squarely decided that the carrier is not
bound to transport dangerous articles, although there has been what may be regarded as a general
understanding that such is the fact."

In Hutchinson on Carriers (sec. 145), it is said, relative to the necessity of a carrier receiving for carriage dynamite
or other dangerous explosives: "He may, for instance, lawfully refuse to receive them (the goods) if they are
improperly packed or if they are otherwise in an unfit condition for carriage. Or he may show that the goods
offered were of a dangerous character, which might subject him or his vehicle, or strangers or his passengers, or
his other freight, to the risk of injury."

In a note to the text the author says: "Nor is he bound to accept such articles as nitro-glycerine, dynamite,
gunpowder, oil of vitriol and the like."

In Elliot on Railroads (vol. 4, p. 151), appears the following: "Again, goods may properly be refused which are
tendered in an unfit condition for transportation, or which are dangerous, or which are reasonably believed to be
dangerous."

In the case of Boston & Albany Railroad Co. vs. Shanly (107 Mass., 568), the court said at page 576: "Both the
dualin and the exploders are thus alleged to be explosive and dangerous articles. Each of them was sent without
giving notice of its character to the plaintiffs, and they were ignorant in respect to it. The rule of law on this subject
is in conformity with the dictates of common sense and justice, and is well established. One who has in his
possession a dangerous article, which he desires to send to another, am send it by a common carrier if he will
take it; but it is his duty to give him notice of its character, so that he may either refuse to take it, or be enabled, if
he takes it, to make suitable provision against the danger."

This case cites three English cases as follows, Williams vs. East India Co. (3 East, 192); Brass vs. Maitland (6 El.
& Bl. 470; Farrant vs. Barnes (11 C.B. [N.S.], 553).

In the case of Porcher vs. Northeastern R. Co. (14 Rich. L., 181), the court quoted with approval the following
from Story on Bailments: "If he (the carrier) refuses to take charge of the goods because his coach is full or
because they are of a nature which will at the time expose them to  extraordinary danger  or to popular rage, or
because he has no convenient means of carrying such goods with security, etc., these will furnish reasonable
grounds for his refusal,and will, if true, be a sufficient legal defense to a suit for the non-carriage of the goods."

In the case of Fish vs. Chapman (2 Ga., 349), the court said: "A common carrier is bound to convey the goods of
any person offering to pay his hire, unless his carriage be already full, or the risk sought to be imposed upon him
extraordinary, or unless the goods be of a sort which he cannot convey or is not in the habit of conveying."

In the case of Farrant vs. Barnes, above cited, the court said that the shipper "knowing the dangerous character
of the article and omitting to give notice of it to the carrier so that he might exercise his discretion as to whether he
would take it or not  was guilty of a clear breach of duty."

To the same effect, generally, are Jackson vs. Rodgers (2 Show., 327); Riley vs. Horne (5 Bing., 217);
Lane vs. Cotton (1 Ld. Raym., 646); Edwards vs. Sheratt (1 East, 604); Elsee vs. Gatward (5 T. R., 143);
Dwight vs. Brewster (1 Pick., 50); Jencks vs. Coleman (2 Summ., 221); Story on Bail., 322, 323;
Patton vs. Magrath (31 Am. Dec., 552).

In Story on Bailments (sec. 508), is found the following: "If a carrier refuses to take charge of goods because his
coach is full; or because the goods are of a nature which will at the time expose them to extraordinary danger; ...
these will furnish reasonable grounds for his refusal; and will, if true, be a sufficient legal defense to a suit for the
non-carriage of the goods."

It will be noted that all of these cases holding that a common carrier is not obliged to receive a dangerous
substance, such as dynamite and other high explosives,  refer exclusively to carriers of merchandise and not to
carriers of passengers. If the authorities are uniform in holding that companies carrying freight are not obliged to
accept dangerous explosives for carriage, there can be no question as to what the rule would be with reference to
a carrier of passengers.

Far from requiring passenger boats to accept dynamite and other high explosives for carriage, the attitude of the
people of the United States and of various States is shown by their statutes. The laws of the United States and of
many of the States prohibit passengers boats and passenger trains from carrying dangerous explosives. Sections
232, 233, 234, 2345 and 236 of the Criminal Code of the United States (Compiled Stat., 1901), read:
SEC. 232. It shall be unlawful to transport, carry, or convey, any dynamite, gunpowder, or other explosive,
between a place in a foreign country and a place within or subject to the jurisdiction of the United States, or
between a place in any State, Territory, or District of the United States, or place non-contiguous to but subject to
the jurisdiction thereof, and a place in any other State, Territory, or District of the United States, or place non-
contiguous to but subject to the jurisdiction thereof, on any vessel or vehicle of any description operated by a
common carrier, which vessel or vehicle is carrying passengers for hire: . . ..

SEC. 233. The Interstate Commerce Commission shall formulate regulations for the safe transportation of
explosives, which shall be binding all common carriers engaged in interstate or foreign commerce which transport
explosives by land. Said commission, of its own motion, or upon application made by any interested party, may
make changes or modifications in such regulations, made desirable by new information or altered conditions.
Such regulations shall be in accord with the best known practicable means for securing in transit, covering the
packing, marking, loading, handling while in transit, and the precautions necessary to determine whether the
material when offered is in proper condition to transport.

Such regulations, as well as all changes or modifications thereof, shall take effect after ninety days after their
formulation and publication commission and shall be in effect until reversed, set aside, or modified.

SEC. 234. It shall be unlawful to transport, carry, or convey, liquid nitroglycerin, fulminate in bulk "in dry condition,
or other like explosive, between a place in a foreign country and a place within or subject to the jurisdiction of the
United States, or between a place in one State, Territory, or District of the United States, or place non-contiguous
to but subject to the jurisdiction thereof, and a place in any other State, Territory, or District of the United States,
or place non-contiguous to but subject to the jurisdiction thereof, on any vessel or vehicle of any description
operated by a common carrier in the transportation of passengers or articles of commerce by land or water.

SEC. 235. Every package containing explosives or other dangerous articles when presented to a common carrier
for shipment shall have plainly marked on the outside thereof the contents thereof; and it shall be unlawful for any
person to deliver, or cause to be delivered, to any common carrier engaged in interstate or foreign commerce by
land or water, for interstate or foreign transportation, or to carry upon any vessel or vehicle engaged in interstate
or foreign transportation, any explosive, or other dangerous article, under any false or deceptive marking,
description, invoice, shipping order, or other declaration, or without informing the agent of such carrier of the true
character thereof, at or before the time such delivery or carriage is made. Whoever shall knowingly violate, or
cause to be violated any provision of this section, or of the three sections last preceding, or any regulation made
by the Interstate Commerce Commission in pursuance thereof, shall be fined not more than two thousand dollars,
or imprisoned not more than eighteen months, or both.

SEC. 236. When the death or bodily injury of any person is caused by the explosion of any article named in the
four sections last preceding, while the same is being placed upon any vessel or vehicle to be transported in
violation thereof, or while the same is being so transported, or while the same is being removed from such vessel
or vehicle, the person knowingly placing, or aiding or permitting the placing of such articles upon any such vessel
or vehicle, to be so transported, shall be imprisoned not more than ten years.

Human ingenuity has been continuously exercised for ages to make sea travel safe, that men might sail the seas
with as little risk as possible; that they might rely upon the quality of the ship and the character and experiences of
the sailors who manned her; that they might feel that the dangers of the deep had been reduced to the minimum.
Not only this; the abilities of legislators have been taxed to the same end; to frame that would ensure seaworthy
ships, safe appliances, and reliable officers and crews; to curb the avarice of those who would subordinate the
safety of passengers to a desire for freight; and to so regulate travel by sea that all might safely confide their
property and their lives to the ships sailing under the flag of their country. Can a decision which requires
passenger ships to carry dynamite and all high explosives be made to harmonize with this purpose? What is there
in the Philippine Islands to justify the requirement that passenger ships carry dynamite, while in the United States
the carrying of dynamite by passenger ships is a crime? Why should passengers in the Philippine Islands be
subjected to conditions which are abhorent in the United States? Why compel shipowners in the Philippine Islands
to perform acts which, if done in the United States, would send them to the penitentiary?

I do not believe that we should require passengers to travel on ships carrying, perhaps, many tons of nitro-
glycerine, dynamite or gunpowder in their holds; nor do I believe that any public official should do anything
calculated to add to the calamity of fire, collision, or shipwreck the horrors of explosion.

ARAULLO, J.,  dissenting:

I do not agree with the decision of the majority of this court in this case, first, because one of the grounds of the
demurrer to the complaint — the first one — is that of lack of legal capacity to sue on the part of the plaintiff and
nothing is said in the decision regarding this very important point. It is one which ought to have received special
attention, even before the other alleged in the demurrer that the complaint does not state facts sufficient to
constitute a cause of action, and the only one that received any consideration in the decision in question. Second,
because notwithstanding that in the decision no consideration was paid to the alleged lack of legal capacity on the
part of the plaintiff, he is, reason of the demurrer being sustained, authorized to present an amended complaint
within ten days, an authorization which could not and should not have on the part of said plaintiff was not lacking.

DECISION OF MARCH 31, 1915.

CARSON, J.:

This case is again before us upon a demurrer interposed by the respondent officials of the Philippine Government
to an amended complaint filed after publication of our decision sustaining the demurrer to the original complaint.

In our former opinion, entered November 5, 1914, we sustained the demurrer on the ground that the original
complaint did not set forth facts sufficient to constitute a cause of action. In that decision we held that the statute
(Act No. 98) the validity of which was attacked by counsel por plaintiff was, when rightly construed, a valid and
constitutional enactment, and ruled:

That whatever may have been the rule at the common law, common carriers in this jurisdiction cannot lawfully
decline to accept a particular class in those goods, unless it appears that for some sufficient reason the
discrimination against the traffic in such goods is reasonable and necessary. Mere prejudice or whim will not
suffice. The grounds of the discrimination must be substantial ones, such as will justify the courts in holding the
discrimination to have been reasonable and necessary under all the circumstances of the case.

xxx      xxx      xxx

The traffic in dynamite, gunpowder and other explosives is vitally essential to the material and general welfare of
the people of these Islands. If dynamite, gunpowder and other explosives are to continue in general use
throughout the Philippines, they must be transported by water from port to port in the various islands which make
up the Archipelago. We are satisfied therefore that the refusal by a particular vessel, engaged as a common
carrier of merchandise in the coastwise trade of the Philippine Islands, to accept any or all of these explosives for
carriage would constitute a violation of the prohibitions against discriminations penalized under the statue, unless
it can be shown by affirmative evidence that there is so real and substantial a danger of disaster necessarily
involved in the carriage of any or all of these articles of merchandise as to render such refusal a due or a
necessary or a reasonable exercise of prudence and discretion on the part of the ship owner.

Resting our judgment on these rulings we held that the allegations of the complaint, which in substance alleged
merely that the respondent officials were coercing the respondent steamship company to carry explosives upon
some of their vessels, under authority of, and in reliance upon the provisions of the Act, did not set forth facts
constituting a cause of action; or in other words, that the allegations of the complaint even if true, would sustain a
finding that the respondent officials were acting "without or in excess of their jurisdiction" and lawful authority in
the premises.

The amended complaint filed on November 14, 1914, is substantially identical with the original complaint, except
that it charges the respondent officials, as of the date of the amended complaint, with the unlawful exercise of the
authority or intent to exercise unlawful authority which should be restrained, and substitutes the names of the
officers now holding the offices of Collector of Customs, Attorney-General and prosecuting attorney for those of
the officials holding those offices at the date of the filing of the original complaint; and except further that it adds
the following allegations:

That each and every one of the vessels of the defendant company is dedicated and devoted to the carriage of
passengers between various ports in the Philippine Islands, and each of said vessels, on all of said voyages
between the said ports, usually and ordinarily does carry a large number of such passengers.

That dynamite, powder, and other explosives are dangerous commodities that cannot be handled and transported
in the manner and from in which ordinary commodities are handled and transported. That no degree of care,
preparation and special arrangement in the handling and transportation of dynamite, powder and other explosives
will wholly eliminate the risk and danger of grave peril and loss therefrom, and that the highest possible degree of
care, preparation of said commodities is only capable of reducing the degree of said danger and peril. That each
and every one of the vessels of the defendant company is wholly without special means for the handling, carriage,
or transportation of dynamite, powder and other explosives and such special means therefor which would
appreciably and materially reduce the danger and peril therefrom cannot be installed in said vessels without a
costs and expense unto said company that is unreasonable and prohibitive.

As we read them, the allegations of the original complaint were intended to raise and did in fact raise, upon
demurrer, a single question which, if ruled upon favorably to the contention of plaintiff, would, doubtless, have put
an end to this litigation and to the dispute between the plaintiff stockholder of the steamship company and the
officials of the Philippine Government out of which it has arisen.

In their brief, counsel for plaintiff, in discussing their right to maintain an action for a writ of prohibition, relied upon
the authority of Ex parte Young (209 U. S. [123] 163, 165), and asserted that:

Upon the authority, therefore, of Ex parte Young, supra, the merits of the question pending between petitioner and
respondents in this action is duly presented to this court by the complaint of petitioner and general demurrer of
respondents thereto. That question, in plain terms, is as follows:

Is the respondent Yangco Steamship Company legally required to accept for carriage and carry "any person or
property offering for carriage?"

"The petitioner contends that the respondent company is a common carrier of only such articles of freight as they
profess to carry and hold themselves out as carrying;" and in discussing the legal capacity of plaintiff to maintain
this action, counsel in their printed brief asserted that "here we have no address to the court to determine whether
a minority or a majority shall prevail in the corporate affairs; here we ask plainly and unmistakably who shall fix the
limits of the corporate business — the shareholders and directors of the corporation, or certain officials of the
government armed with an unconstitutional statute?

Counsel for plaintiff contended that under the guaranties of the Philippine Bill of Rights a common carrier in the
Philippine Islands may arbitrarily decline to accept for carriage any shipment or merchandise of a class which it
expressly or impliedly declines to accept from all shippers alike; that "the duty of a common carrier to carry for all
who offer arises from the public profession he has made, and is limited by it;" that under this doctrine the
respondent steamship company might lawfully decline to accept for carriage "dynamite, powder or other
explosives," without regard to any question as to the conditions under which such explosives are offered for
carriage, or as to the suitableness of its vessels for the transportation of such explosives, or as to the possibility
that the refusal to accept such articles of commerce in a particular case might have the effect of subjecting any
person, locality or the traffic in such explosives to an undue, unreasonable or unnecessary prejudice or
discrimination: and in line with these contentions counsel boldly asserted that Act No. 98 of the Philippine
Commission is invalid and unconstitutional in so far as it announces a contrary doctrine or lays down a different
rule. The pleader who drew up the original complaint appears to have studiously avoided the inclusion in that
complaint of any allegation which might raise any other question. In doing so he was strictly within his rights, and
having in mind the object sought to be attained, the original complaint is a model of skillful pleading, well
calculated to secure the end in view, that is to say, a judgment on the precise legal issue which the pleader
desired to raise as to the construction and validity of the statute, which would put an end to the controversy, if that
issue were decided in his favor.

Had the contentions of plaintiff as to the unconstitutionality of the statute been well founded, a writ of prohibition
from this court would have furnished an effective and appropriate remedy for the alleged wrong. The issue
presented by the pleadings on the original complaint, involving a question as to the validity of a statute and
affecting, as it did, the shipping and public interests of the whole Islands, and submitting be complicated question
or series of questions of fact, was of such a nature that this court could not properly deny the right of the plaintiff
to invoke its jurisdiction in original proceedings. We deemed it our duty therefore to resolve the real issue raised
by the demurrer, and since we are of opinion that the contentions of counsel for plaintiff were not well founded,
and since a ruling to that effect necessarily resulted in an order sustaining the demurrer, we did not deem it
necessary or profitable to consider questions of practice or procedure which it might have been necessary to
decide under a contrary ruling as to the principal question raised by the pleadings; nor did we stop to consider
whether the "subject matter involved" in the controversy might properly be submitted to the Board of Public Utility
Commissioners, because upon the authority of Ex parte Young (supra) we are satisfied as to the jurisdiction and
competency of this court to deal with the real issues raised by the pleadings on the original complaint, and
because, furthermore, the Act of the Philippine Legislature creating the Board of Public Utility Commissioners
could not deprive this court of jurisdiction already invoked in prohibition proceedings instituted for the purpose of
restraining the respondent official as of the Government from the alleged unlawful exercise of authority under
color of an invalid and without jurisdiction in the premises.

The amended complaint, however, presents for adjudication in original prohibition proceedings in this court
questions of a wholly different character from those submitted in the original complaint.

In so far as it reiterates the allegation s of the former complaint to the effect that the respondent officials are
unlawfully coercing the steamship company by virtue and under color of the provisions of an invalid or
unconstitutional statute, it is manifest, of course, that the amended complaint is no less subject to criticism than
was the original complaint. If, therefore, the action can be maintained upon its allegations that those officials are
coercing the company to carry explosives on vessels which, as a matter of fact, are not suitably equipped for that
purpose, and which from the nature of the business in which they are engaged should not be required to carry
explosives.

It will readily be seen, under our former opinion, that these allegations raise no question as to the validity or
constitutionality of any statute; that the real question which plaintiff seeks to submit to this court in original
prohibition proceedings is whether the respondent officials of the Government are correctly exercising the
discretion and authority with which they have been clothed; and that his contention in the amended complaint is
not, as it was in the original complaint, that these officials are acting without authority and in reliance upon an
invalid and unconstitutional statute, but rather that they are exercising their authority improvidently, unwisely or
mistakenly.

Under the provisions of sections 226 and 516 of the Code of Civil Procedure jurisdiction in prohibition proceedings
is conferred upon the courts when the complaint alleges "the proceedings of any inferior tribunal, corporation,
board, or person, whether exercising functions judicial or ministerial, were without or in excess of the jurisdiction
of such tribunal, corporation, board or person." It is manifest therefore that the allegations of the amended
complaint, even if true, will not sustain the issuance of a writ of prohibition without further amendment unless they
be construed to in effect a charge that the respondent officials are abusing the discretion conferred upon them in
the exercise of their authority in such manner that the acts complained of should be held to be without or in
excess of their jurisdiction.

It may well be doubted whether the doctrine of the case Ex parte  Young (supra), relied upon by the plaintiff in his
argument be invoked in support of a right of action predicated upon such premises; so also, since the acts
complained of in the amended complaint are alleged to have been done at a date subsequent to the enactment of
the statutes creating the Board of Public Utility Commissioners, it may well be doubted whether the courts should
entertain prohibition proceedings seeking to restrain alleged abuses of discretion on the part of officers and
officials of the Government, and of public service corporations with regard to the rules under which such
corporations are operated, until and unless redress for the alleged wrong has been sought at the hands of the
Board.

We do not deem it expedient or necessary, however, to consider or decide any of these questions at this time,
because we are of opinion that we should not permit our original jurisdiction to be set in motion upon the
allegations of the amended complaint.

It is true that this court is clothed with original jurisdiction in prohibition proceedings (sec. 516, Act No. 190). But
this jurisdiction is concurrent with the original jurisdiction of the various Courts of First Instance throughout the
Islands, except in cases where the writ runs to restrain those courts themselves, when of course it is exclusive;
and we are satisfied that it could have been the intention of the legislator to require this court to assume original
jurisdiction in all cases wherein the plaintiff elects to invoke it. Such a practice might result in overwhelming this
court with the duty of entertaining and deciding original proceedings which from their nature could much better be
adjudicated in the trial courts; and in unnecessarily diverting the time and attention of the court from its important
appellate functions to the settlement of controversies of no especial interest to the public at large, in the course of
which it might become necessary to take testimony and to make findings touching complicated and hotly
contested issues of fact.

We are of opinion and so hold that unless special reasons appear therefor, this court should decline to permit its
original jurisdiction to be invoked in prohibition proceedings, and this especially when the adjudication of the
issues raised involves the taking of evidence and the making of findings touching controverted facts, which, as a
rule, can be done so much better in the first instance by a trial court than an appellate court organized as is ours.

Spelling on Injunctions and Other Extraordinary Remedies (vol. 2, p. 1493), in discussing the cases in which the
appellate courts in the United States permit their original jurisdiction to be invoked where that jurisdiction is
concurrent with that of some inferior court, says:

Of the plan of concurrent jurisdiction West Virginia may be taken as an illustration. The Supreme Court of Appeals
of that State has concurrent original jurisdiction with the circuit courts in cases of prohibition, but by a rule adopted
by the former court it will not take such original jurisdiction unless reasons appear therefor.

We deemed it proper to assume jurisdiction to adjudicate and decide the issues raised by the rulings on the
original complaint, involving as they did a question as to the validity of a public statute of vital interest to shippers
and shipowners generally as also to the public at large, presenting for determination no difficult or complicated
questions of fact: but we are satisfied that we should decline to take jurisdiction of the matters relied upon in the
amended complaint in support of plaintiff's prayer for the writ.

The question of the construction and validity of the statute having been disposed of in our ruling on the demurrer
to the original complaint, it must be apparent that of the allegations of the amended complaint are sufficient to
maintain the plaintiff's action for a writ of prohibition, a question as to which we expressly reserve our opinion, the
action should be brought in one of the Courts of First Instance.

Twenty days hereafter let the complaint de dismissed at the costs of the plaintiff, unless in the meantime it is
amended so as to disclose a right upon the part of the plaintiff to invoke the original jurisdiction of this court
without first proceeding in one of the Courts of First Instance. So ordered.

Arellano, C.J., Torres, and Trent, JJ., concur.

4. G.R. No. L-8686            July 30, 1915

THE UNITED STATES, plaintiff-appellee, 
vs.
PASCUAL QUINAJON and EUGENIO QUITORIANO, defendants-appellants.
Irineo Javier for appellants.
Attorney-General Villamor for appellee.
JOHNSON, J.:

The defendants were charged with a violation of the provisions of Act No. 98. A complaint was presented in the
court of the justice of the peace on the 11th day of November, 1912. A preliminary examination was had and the
defendants were held for trial in the Court of First Instance of the province of Ilocos Norte.

On the 17th day of November, 1912, the prosecuting attorney of the Province of Ilocos Norte presented the
following complaint:

The undersigned charges Pascual Quinajon and Eugenio Quitoriano, residents of the municipality of Paoay,
Ilocos Norte, P.I., with violating Act No. 98 of the Civil Commission, within the jurisdiction of this court, as follows:

That the aforementioned accused are now and have been engaged for more than four years prior to this date in
the transportation of passengers and merchandise in the port of Currimao — that is, in the loading and unloading
of passengers and merchandise by means of virayes from the shore the steamers that anchor in the said port,
and vice versa.

That the said accused have been regularly charging 6 centavos for the unloading and loading of each package of
merchandise of cargo, large or small, heavy or light, off or on the steamers that anchor in the said port of
Currimao, and that the unloading is understood to be from the steamer to the storage warehouses.

That, in the months of June, July, and September, 1912, the said accused, by means of their virayes and
employees, did unload in the port of Currimao aforementioned 5,986 sacks of rice belonging to the provincial
government of Ilocos Norte, P.I., that had come from Manila, P.I., which sacks were unloaded from the steamers
in which they had been shipped and were carried to the storage warehouses in which they were deposited; that
the said accused did willfully, unlawfully, and criminally demand and collect from the provincial treasurer for the
unloading of each one of the said sacks of rice 10 centavos which, as set forth in the preceding paragraph, they
have been regularly charging for such services in the unloading of the same kind of merchandise and under
virtually the same circumstances and conditions; that the total sum of the payments so made by the provincial
treasurer amounted to P598.60 for the aforesaid 5,986 sacks of rice, the provincial government of Ilocos Norte,
P.I., being thereby damaged in the sum of 359.16, inasmuch as it should have paid only 239.44, in accordance
with the said rate of 6 centavos for each package.

Acts committed in violation of the said Act No. 98 of the Civil Commission.

Upon that complaint the defendants were duly arraigned, tried, found guilty of the crime charged, and sentenced
by the Honorable Dionisio Chanco, judge, to pay a fine of $100 (P200) and costs, and to return to the provincial
government of the Province of Ilocos Norte the sum of P359.16.
From that sentence each of the defendants appealed to this court. In this court they allege that the lower court
committed the following errors:

1. The court erred in holding that the accused had been regularly collecting 6 centavos for the loading or the
unloading of each sack rice from steamers in the port of Currimao.

2. The court erred in holding that the defendants established preferential privileges and made discriminations in
favor of certain shippers, against the provincial government of Ilocos Norte, in the loading or unloading of
merchandise on to or from the steamers in the port of Currimao.

3. The court erred, further, in sentencing the accused to pay to the provincial government of Ilocos Norte the sum
of P359.16.

The first assignment of error presents a question of fact only. The appellants allege that the lower court committed
an error in its conclusions of fact. They allege that the lower court committed an error in deciding that they had
regularly charged 6 centavos for each sack of rice loaded or unloaded at the port of Currimao. The decision of the
lower court contains the following statement of facts:

It is proven that the defendants, acting as representatives of the Union Obrera, established at the port of
Currimao, Ilocos Norte, and engaged by means of virayes as common carriers of passengers and in loading and
unloading freight from steamers anchoring at said port, to the shore or to the warehouses, and vice versa, have
regularly collected, during the last four years, 6 centavos for each sack of rice loaded or unloaded by said
association.

It is likewise proven that the same defendants, representing the same association, collected from the provincial
government of Ilocos Norte 10 centavos for each of the 5,986 sacks of rice which they unloaded from the
steamers during the months of June, July, and September, as property belonging to the said government, a price
which differed from the usual, charge of 6 centavos made to others shippers of said commodity.

The provincial fiscal presented as witnesses in support of the information the Chinese merchants Cu Chatco, Cu
Joco, Sy Yacco, Lim Anco, and Francisco Castro, who testified that they paid to the defendants for loading and
unloading supplies from the steamers at Currimao 6 centavos for each package of any kind of supplies, large or
small, heavy or light. The two first named, Cu Chatco and Cu Joco, testified, furthermore, that formerly they paid
transportation charges for the loading and discharge of their supplies from the steamers according to the weight
and size of each package, for which purpose a classification was previously made by weighing and measuring
said packages or merchandise. Cu Joco does not remember how much was paid at that time for each package,
but Cu Chatco states that 10 centavos was paid for the transportation of each sack of rice weighing 60 kilos or
more. The two above-named witnesses, Cu Chatco and Cu Joco, add that as the task of weighing and measuring
was very annoying to the Chinese merchants at Laoag, Ilocos Norte, they suggested to the defendants and
entered into an agreement with them, to pay by the lot the transportation charges covering loaded onto or
unloaded from the steamers, at the rate of 6 centavos for each package, heavy or light, large or small.

We have made a careful examination of the evidence adduced during the trial of the cause, and conclude that
said facts are substantially sustained thereby. The evidence clearly shows that the defendant collected 6 centavos
for each package, of whatever kind of merchandise, large or small, heavy or light, from those merchants only with
whom they had a special contract. From other merchants, with whom they had not made said special contract, as
well as the Province of Ilocos Norte, they collected a different rate. The evidence shows that they collected from
the Province of Ilocos Norte 10 centavos for each sack of rice which they unloaded from the steamers during the
months of June, July, and September. There seems to be no reason for reversing or modifying the conclusions of
the lower court based upon said finding of facts. The effect of collecting a different amount from different persons
for exactly analogous or similar service performed by the defendants will be discussed when we come to a
discussion of the law applicable to the foregoing facts.

The second assignment of error, to wit, that "the lower court committed an error in holding that the defendants
established preferential privileges in favor of certain shippers," presents the question whether or not the
defendants and appellants, in view of the foregoing facts, have violated the provisions of said Act No. 98.

The facts, as they are disclosed by the record and the findings of the lower court, may be stated concretely as
follows: (1) The defendants, as common carriers, charged and collected from some shippers and merchants, a
certain price for each package of merchandise, loaded or unloaded, according to a certain schedule. (See Exhibit
A.) The prices fixed in the schedule depended upon the size and weight of the package. (2) The defendants
entered into a special contract with certain merchants, under and by virtue of the terms of which they charged and
collected, for loading merchandise in said port, the sum of 6 centavos for each package, without reference to its
size or weight.

It is contended that it cost any more to load or unload the rice for the province than it did for the merchants with
whom the special contract was made. There is no proof that the conditions were different. There is no proof that
the services rendered by the defendants for the different parties were unlike or even not contemporaneous. The
defendants justify their acts by the fact that they handled all the merchandise of some merchants, whether the
packages were large or small, at the same price.

Under these facts, the question is squarely presented whether or not the defendants are guilty of a violation of the
spirit or the letter of said Act No. 98. Said Act No. 98 was largely borrowed from the Act of Congress of February
4, 1887. The language of the two Acts, so far as they relate to the present case, is practically the same. Said Act
of Congress has been construed by the Federal courts of the United States in several decisions. In view of the
United States to said Act of Congress.

The similarity of Act No. 98 and the Act of Congress may be seen in the following quotations:
(Sec. 1, Act No. 98.) (Sec. 2, Act of Congress, Feb. 4, 1887.)

No person or corporation engaged as a common carrier of passengers or That if any common carrier subject 
property shall directly or indirectly by to the provisions of this Act shall, any special rate, rebate, drawback or
directly or indirectly, by any special other device, charge, demand, collect rate, rebate, drawback, or other device,
or receive from any person or persons, charge, demand, collect, or receive from a greater or less compensation
for any any person or persons a greater or  service rendered, or to be rendered in less compensation for any
service the transportation of passengers or rendered , or to be rendered, in the property on land or water between
any transportation of passengers or  points in the Philippine Islands than property, subject to the provisions of
such common carrier charges, demands, this Act, than it charges, demands,  collects or receives from any other
person collects, or receives from any other or persons for doing for him a like or person or persons for doing 
contemporaneous service in the for him or them a like and  transportation of a like kind of traffic contemporaneous
service in the under substantially similar circumstances transportation of a like kind of and conditions, and any
such unjust traffic under substantially similar discrimination is hereby prohibited and circumstances and
conditions, such declared to be unlawful. common carrier shall be deemed guilt of unjust discrimination, which is
hereby prohibited and declared to be unlawful.

(Sec. 2, Act No. 98.) (Sec. 3, Act of Congress, Feb. 4, 1887.)

It shall be unlawful for any common carrier engaged in the That it shall be unlawful for any common
transportation of passengers or carrier subject to the provisions of this Act property as above set forth to make to
make or give any undue or unreasonableor give any unnecessary or unreasonable preference or advantage to
any particular preference or advantage to any particular person, company, firm, corporation, or
person, company, firm, corporation or locality, or any particular description of locality, or any particular kind of
traffic traffic, in any respect whatsoever, or to in any respect whatsoever, or to subject subject any particular
person, company, any particular person, company, firm, firm, corporation, or locality, or any corporation or locality,
or any particular particular description of traffic, to any  kind of traffic, to any undue or undue or unreasonable
prejudice or unreasonable prejudice or discrimination disadvantage in any respect whatsoever. whatsoever, and
such unjust preference or discrimination is also hereby prohibited and declared to be unlawful.

Said Act No. 98 is "An Act to regulate commerce in the Philippine Islands." Its purpose, so far as it is possible, is
to compel common carriers to render to all persons exactly the same or analogous service for exactly the same
price, to the end that there may be no unjust advantage or unreasonable discrimination. It applies to persons or
corporation engaged as common carriers of passengers or property. A common carrier is a person or corporation
whose regular business is to carry passengers or property for all persons who may choose to employ and
renumerate him. A common carrier is a person or corporation who undertakes to carry goods or persons for hire.
The appellants admit that they are common carriers. The only question presented is whether or not, under the
facts, they have violated the Act regulating commerce in the Philippine Islands.

The law provides that no common carrier shall directly or indirectly, by any special rate, rebate, drawback, or other
device, charge, demand collect, or receive from any person or persons, a greater or less compensation for any
service rendered in the transportation of passengers or property, between points in the Philippine Islands, than he
charges, demands, collects, or receives from any other person or persons, for doing a like or contemporaneous
service, under substantially similar conditions or circumstances.

The law prohibits any common carrier from making or giving any unnecessary or unreasonable preference or
advantage to any particular person, company, firm, corporation or locality, or any particular kind of traffic, or to
subject any particular person, company, firm, corporation, or locality, or any particular kind of traffic, to any undue
or unreasonable prejudice or discrimination whatsoever.

It will be noted that the law requires common carriers to carry for all persons, either passengers or property, for
exactly the same charge for a like or contemporaneous service in the transportation of like kind of traffic under
substantially similar circumstances or conditions. The law prohibits common carriers from subjecting any person,
etc., or locality, or any particular kind of traffic, to any undue or unreasonable prejudice or discrimination
whatsoever. The law does not require that the same charge shall be made for the carrying of passengers or
property, unless all the conditions are alike and contemporaneous. It is not believed that the law prohibits the
charging of a different rate for the carrying of passengers or property when the actual cost of handling and
transporting the same is different. it is not believed that the law intended to require common carriers to carry
the same kind of merchandise, even at the same price, under different and unlike conditions and where the actual
cost is different. The actual cost of handling and transporting the same quantity of rice, for example, might be
different, depending upon the form of package or other conditions. It would cost more to handle and transport rice
packed in open boxes or baskets, for example, than it would to handle and transport the same quantity of rice
neatly packed in sacks. It would cost more to handle and transport hemp, when it is unbaled and loose, than it
would when it is baled. It might cost more to handle and transport household goods uncrated than when they are
crated. It is not believed that the law prohibits the charging of a different price for handling and shipping
merchandise when the shipper exercises greater care in preparing the same for shipment, thereby reducing the
actual cost of handling and transporting. If the shipper puts his merchandise in a condition which costs less to
handle and transport, he is certainly entitled to a better rate. The difference in the charge to different merchants or
shippers must be based upon the actual cost of handling and transporting. The law does not require common
carriers to perform different services for the same price, unless the actual cost is the same. It is when the price
charged is for the purpose of favoring persons or localities or particular kinds of merchandise, that the law
intervenes and prohibits. It is favoritism and discrimination which the law prohibits. The difference in charge must
not be made to favor one merchant, or shipper, or locality, to the disadvantage of another merchant, or shipper, or
locality. If the services are alike and contemporaneous, discrimination in the price charged is prohibited. For the
purposes of the law, it is not sufficient always to say that merchandise is alike, simply because it is of a like kind or
quantity. The quantity, kind, and quality may be exactly the same, and yet not be alike, so far as the cost of
transportation is concerned. Examples have been given above. Many others might be given. A and B are each
shippers of bananas between the same points. A delivers his bananas to the carrier in separate bundles or
bunches, without a wrapper or any kind of protection, while B delivers exactly the same number of bunches of
bananas, but they are neatly packed in a few boxes or baskets. It does not require much argument to convince
men conversant with the shipping of merchandise, in such a case, that the actual cost of handling and shipping
would be different and would, therefore, not be "alike," although contemporaneous, perhaps. Neither is it believed
that shipments may be rendered unlike by the fact that the total shipment is composed of different kinds or
classes of merchandise. For example, A is a shipper of rice and hemp and B is a shipper of rice alone. Both A and
B prepare their rice for shipment in exactly the same form of package. It is not believed that the carrier is
permitted, under the law, to carry A's rice for a less price than he carries B's rice, simply because A is also a
shipper of hemp. A difference in the charge for handling and transporting may only be made when the difference
is based upon actual  cost. The actual cost may depend upon quantity. A man who ships freight by the car-load,
by reason of the actual cost of handling and shipping, may be entitled, under certain conditions, to a better rate
than the man who ships a single article or package of the same class or kind of merchandise. A train-load of cattle
might be shipped from Dagupan to Manila, for example, at less cost per head than it would cost to ship just a few
head, less than a car-load. The actual cost of each shipment must necessarily depend upon and be settled by its
own proof. This rule, however, does not prohibit the making of general schedules, providing they are made
applicable to all. The difference in the charge made by the common carrier cannot be made for the purpose of
favoring any person or locality, to the prejudice or disadvantage of another person or locality. A common carrier
may discriminate between shippers when the amount of goods shipped by one actually costs less to handle and
transport, but he cannot discriminate upon the ground simply that he carries all of the goods of one shipper, while
he does not carry all of the goods of another. The difference in the charge must be the difference in the cost.

It is competent for a common carrier under the law, we believe, to enter into special agreements for handling and
transporting merchandise, whereby advantage may accrue to individuals, when it is made clearly to appear that
by such agreements the common carrier has only its interests and the legitimate increase of its profits in view, and
when the consideration given to the individual is for the interest of the common carrier alone, and when the
common carrier gives all shippers exactly the same rate, under the same conditions.

The appellants justify the different charge upon the ground that they carried pianos and matches, for the
merchants with whom they had the special contracts, at the same price. It is not believed that a merchant who
happens to be a shipper of both pianos and matches, should have any advantage over the merchant who ships
pianos alone, unless there is some other actual additional cost in the one case, which does not exist in the other.
A common carrier can not discriminate upon the ground that he carries all of the goods of one shipper, while he
does not of another.

In the present case there is no pretense that it actually cost more to handle the rice for the province than it did for
the merchants with whom the special contracts were made. From the evidence it would seem that there was a
clear discrimination made against the province. Discrimination is the thing which is specifically prohibited and
punished under the law.

It is not believed that the law prohibits common carriers from making special rates for the handling and
transporting of merchandise, when the same are made for the purpose of increasing their business, and to
manage their important interests upon the same principles which are regarded as sound, and adopted in other
trades and pursuits. It is not believed that the law requires absolute equality in all cases. Circumstances and
conditions may make it injurious to the carrier. Absolute equality, under certain circumstances and conditions,
may give shippers an advantage over others. It is only unjust, undue, and unreasonable discrimination which the
law forbids. The law of equality is in force only where the services performed in the different cases are
substantially the same, and the circumstances and conditions are similar. Many considerations may properly enter
into the agreement for the carriage or shipment rate, such as the quantity carried, its nature, its risks, the expense
of carriage at different periods of time, and the like. Numerous circumstances may intervene, which bear upon the
cost and expense of transportation, and it is but just to the carrier that he be permitted to take these
circumstances into consideration, in determining the rate or amount of his compensation. A question of fact is
raised in each case for the courts to decide.

The foregoing conclusions are based upon literally hundreds of decisions of the courts of different states, and the
Supreme Court of the United States, as well as those of England, which have interpreted statutes analogous to
the one under consideration.

In the third assignment of error the appellants allege that the lower court committed an error in condemning them
to pay or return to the provincial government the sum of P359.16. It is not exactly clear from the decision of the
lower court just how he arrived at that conclusion. Section 5 of Act No. 98 provides that any person or corporation,
who may be damaged by reason of the doing by a common carrier of any matters and things prohibited, shall be
entitled to sue for and recover all damages so incurred, etc. It would seem that the defendants and appellants had
a right to charge the provincial government 6 centavos for each sack of rice unloaded. They unloaded for the
province 5,986 sacks, for which they charged the sum of P598.60. They had a right to collect 6 centavos, or the
sum of P359.16. The appellants therefore collected from the province more than they had a right to collect, the
difference between P598.60 and 359.16, or P239.44. They should be required, therefore, to return to the province
the excess which they collected, or the sum of P239.44. The judgment of the lower court, therefore, should be
modified in this respect. The defendants are hereby ordered to return to the Province of Ilocos Norte the sum
P239.44, for which sum a judgment is hereby ordered to be entered against them, for which execution may issue
when this judgment becomes final, in case the same is not paid.

After a careful analysis of the facts, and the law applicable thereto, the judgment of the lower court, as herein
modified, should be and is hereby affirmed with costs. So ordered.

5. G.R. No. 131621 September 28, 1999

LOADSTAR SHIPPING CO., INC., petitioner, 
vs.COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.
DAVIDE, JR., C.J.:
Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review on certiorari under Rule
45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the following: (a) the 30 January 1997
decision 1 of the Court of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991 2 of
the Regional Trial Court of Manila, Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private
respondent Manila Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from the filing of
the compliant until fully paid, P8,000 as attorney's fees, and the costs of the suit; and (b) its resolution of 19
November 1997, 3 denying LOADSTAR's motion for reconsideration of said decision.

The facts are undisputed.1âwphi1.nêt

On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel) the following
goods for shipment:

a) 705 bales of lawanit hardwood;

b) 27 boxes and crates of tilewood assemblies and the others ;and

c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against various risks including
"TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn, was insured by Prudential
Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its way to Manila from
the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the
total loss of its shipment, the consignee made a claim with LOADSTAR which, however, ignored the same. As the
insurer, MIC paid P6,075,000 to the insured in full settlement of its claim, and the latter executed a subrogation
receipt therefor.

On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel
was due to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay
the insurance proceeds from the loss the vessel directly to MIC, said amount to be deducted from MIC's claim
from LOADSTAR.

In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that sinking of its
vessel was due to  force majeure. PGAI, on the other hand, averred that MIC had no cause of action against it,
LOADSTAR being the party insured. In any event, PGAI was later dropped as a party defendant after it paid the
insurance proceeds to LOADSTAR.

As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to elevate the
matter to the court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto.

In dismissing LOADSTAR's appeal, the appellate court made the following observations:

1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a single shipper on that
fateful voyage. The court noted that the charter of the vessel was limited to the ship, but LOADSTAR retained
control over its crew. 4

2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied in determining
the rights and liabilities of the parties.

3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it had been
seaworthy, it could have withstood the "natural and inevitable action of the sea" on 20 November 1984, when the
condition of the sea was moderate. The vessel sank, not because of  force majeure, but because it was not
seaworthy. LOADSTAR'S allegation that the sinking was probably due to the "convergence of the winds," as
stated by a PAGASA expert, was not duly proven at the trial. The "limited liability" rule, therefore, is not applicable
considering that, in this case, there was an actual finding of negligence on the part of the carrier.5

4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because said provisions bind
only the shipper/consignee and the carrier. When MIC paid the shipper for the goods insured, it was subrogated
to the latter's rights as against the carrier, LOADSTAR. 6

5) There was a clear breach of the contract of carriage when the shipper's goods never reached their destination.
LOADSTAR's defense of "diligence of a good father of a family" in the training and selection of its crew is
unavailing because this is not a proper or complete defense in  culpa contractual.

6) "Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods are delivered on
board a ship in good order and condition, and the shipowner delivers them to the shipper in bad order and
condition, it then devolves upon the shipowner to both allege and prove that the goods were damaged by reason
of some fact which legally exempts him from liability." Transportation of the merchandise at the risk and venture of
the shipper means that the latter bears the risk of loss or deterioration of his goods arising from fortuitous
events, force majeure, or the inherent nature and defects of the goods, but not those caused by the presumed
negligence or fault of the carrier, unless otherwise proved. 7

The errors assigned by LOADSTAR boil down to a determination of the following issues:

(1) Is the M/V "Cherokee" a private or a common carrier?

(2) Did LOADSTAR observe due and/or ordinary diligence in these premises.
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not issued
certificate of public convenience, it did not have a regular trip or schedule nor a fixed route, and there was only
"one shipper, one consignee for a special cargo."

In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not timely raised below;
hence, it is barred by estoppel. While it is true that the vessel had on board only the cargo of wood products for
delivery to one consignee, it was also carrying passengers as part of its regular business. Moreover, the bills of
lading in this case made no mention of any charter party but only a statement that the vessel was a "general
cargo carrier." Neither was there any "special arrangement" between LOADSTAR and the shipper regarding the
shipment of the cargo. The singular fact that the vessel was carrying a particular type of cargo for one shipper is
not sufficient to convert the vessel into a private carrier.

As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to have been
negligent, and the burden of proving otherwise devolved upon MIC. 8

LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November 1984, the
vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the maritime safety
engineers of the Philippine Coast Guard, who certified that the ship was fit to undertake a voyage. Its crew at the
time was experienced, licensed and unquestionably competent. With all these precautions, there could be no
other conclusion except that LOADSTAR exercised the diligence of a good father of a family in ensuring the
vessel's seaworthiness.

LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due to force
majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November 1984, the weather was
fine until the next day when the vessel sank due to strong waves. MCI's witness, Gracelia Tapel, fully established
the existence of two typhoons, "WELFRING" and "YOLING," inside the Philippine area of responsibility. In fact, on
20 November 1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa Island. Tapel also
testified that the convergence of winds brought about by these two typhoons strengthened wind velocity in the
area, naturally producing strong waves and winds, in turn, causing the vessel to list and eventually sink.

LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as what
transpired in this case, is valid. Since the cargo was being shipped at "owner's risk," LOADSTAR was not liable
for any loss or damage to the same. Therefore, the Court of Appeals erred in holding that the provisions of the
bills of lading apply only to the shipper and the carrier, and not to the insurer of the goods, which conclusion runs
counter to the Supreme Court's ruling in the case of St. Paul Fire & Marine Co. v. Macondray & Co.,
Inc., 9 and National Union Fire Insurance Company of Pittsburgh v. Stolt-Nielsen Phils., Inc. 10

Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted beyond the
period stated in the bills of lading for instituting the same — suits based upon claims arising from shortage,
damage, or non-delivery of shipment shall be instituted within sixty days from the accrual of the right of action.
The vessel sank on 20 November 1984; yet, the case for recovery was filed only on 4 February 1985.

MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo was due
toforce majeure, because the same concurred with LOADSTAR's fault or negligence.

Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must be deemed
waived.

Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR was at fault or
negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage notwithstanding its
knowledge of a typhoon is tantamount to negligence.

We find no merit in this petition.

Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that the carrier be
issued a certificate of public convenience, and this public character is not altered by the fact that the carriage of
the goods in question was periodic, occasional, episodic or unscheduled.

In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American Steamship
Agencies, Inc., 11 where this Court held that a common carrier transporting special cargo or chartering the vessel
to a special person becomes a private carrier that is not subject to the provisions of the Civil Code. Any stipulation
in the charter party absolving the owner from liability for loss due to the negligence of its agent is void only if the
strict policy governing common carriers is upheld. Such policy has no force where the public at is not involved, as
in the case of a ship totally chartered for the use of a single party. LOADSTAR also cited Valenzuela
Hardwood  and Industrial Supply, Inc. v. Court of Appeals  12 and National Steel Corp. v. Court of Appeals, 13 both
of which upheld the Home Insurance doctrine.

These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason that the factual
settings are different. The records do not disclose that the M/V "Cherokee," on the date in question, undertook to
carry a special cargo or was chartered to a special person only. There was no charter party. The bills of lading
failed to show any special arrangement, but only a general provision to the effect that the M/V"Cherokee" was a
"general cargo carrier." 14 Further, the bare fact that the vessel was carrying a particular type of cargo for one
shipper, which appears to be purely coincidental, is not reason enough to convert the vessel from a common to a
private carrier, especially where, as in this case, it was shown that the vessel was also carrying passengers.

Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common carrier
under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals,15 the Court juxtaposed the
statutory definition of "common carriers" with the peculiar circumstances of that case, viz.:
The Civil Code defines "common carriers" in the following terms:

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the
public.

The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as ancillary activity (in local idiom, as "a sideline". Article
1732 also carefully avoids making any distinction between a person or enterprise offering transportation service
on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business only from a narrow segment of
the general population. We think that Article 1733 deliberately refrained from making such distinctions.

xxx xxx xxx

It appears to the Court that private respondent is properly characterized as a common carrier even though he
merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such backhauling was
done on a periodic or occasional rather than regular or scheduled manner, and eventhough private
respondent's principal occupation was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial freight
rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a
requisite for the incurring of liability under the Civil Code provisions governing common carriers. That liability
arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has
also complied with the requirements of the applicable regulatory statute and implementing regulations and has
been granted a certificate of public convenience or other franchise. To exempt private respondent from the
liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would
be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with
applicable statutory requirements The business of a common carrier impinges directly and intimately upon the
safety and well being and property of those members of the general community who happen to deal with such
carrier. The law imposes duties and liabilities upon common carriers for the safety and protection of those who
utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely
facultative by simply failing to obtain the necessary permits and authorizations.

Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy when it embarked on
its voyage on 19 November 1984. The vessel was not even sufficiently manned at the time. "For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent
officers and crew. The failure of a common carrier to maintain in seaworthy condition its vessel involved in a
contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code." 16

Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied in this case.
The doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or
agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its
vessel to sail despite knowledge of an approaching typhoon. In any event, it did not sink because of any storm
that may be deemed as force majeure, inasmuch as the wind condition in the performance of its duties,
LOADSTAR cannot hide behind the "limited liability" doctrine to escape responsibility for the loss of the vessel
and its cargo.

LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in utter
disregard of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co.,
Inc., 18 and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two cases that after
paying the claim of the insured for damages under the insurance policy, the insurer is subrogated merely to the
rights of the assured, that is, it can recover only the amount that may, in turn, be recovered by the latter. Since the
right of the assured in case of loss or damage to the goods is limited or restricted by the provisions in the bills of
lading, a suit by the insurer as subrogee is necessarily subject to the same limitations and restrictions. We do not
agree. In the first place, the cases relied on by LOADSTAR involved a limitation on the carrier's liability to an
amount fixed in the bill of lading which the parties may enter into, provided that the same was freely and fairly
agreed upon (Articles 1749-1750). On the other hand, the stipulation in the case at bar effectively reduces the
common carrier's liability for the loss or destruction of the goods to a degree less than extraordinary (Articles 1744
and 1745), that is, the carrier is not liable for any loss or damage to shipments made at "owner's risk." Such
stipulation is obviously null and void for being contrary to public policy." 20 It has been said:

Three kinds of stipulations have often been made in a bill of lading. The first one exempting the carrier from any
and all liability for loss or damage occasioned by its own negligence. The second is one providing for an
unqualified limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier
to an agreed valuation unless the shipper declares a higher value and pays a higher rate of. freight. According to
an almost uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary to
public policy, but the third is valid and enforceable. 21

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was subrogated to all
the rights which the latter has against the common carrier, LOADSTAR.

Neither is there merit to the contention that the claim in this case was barred by prescription. MIC's cause of
action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil Code nor the Code of
Commerce states a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) —
which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during
transit — may be applied suppletorily to the case at bar. This one-year prescriptive period also applies to the
insurer of the goods. 22In this case, the period for filing the action for recovery has not yet elapsed. Moreover, a
stipulation reducing the one-year period is null and void; 23 it must, accordingly, be struck down.

WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the Court of
Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.1âwphi1.nêt

SO ORDERED.

6. G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, 
vs. COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C.
ARELLANO, in her official capacity as City Treasurer of Batangas, respondents.
MARTINEZ, J.:
This petition for review on certiorari  assails the Decision of the Court of Appeals dated November 29, 1995, in
CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City, Branch 84, in Civil
Case No. 4293, which dismissed petitioners' complaint for a business tax refund imposed by the City of Batangas.

Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and
operate oil pipelines. The original pipeline concession was granted in 19671 and renewed by the Energy
Regulatory Board in 1992. 2

Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas City.
However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a
local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code3. The
respondent City Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four
installments based on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted
to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in the amount of
P239,019.01 for the first quarter of 1993.

On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the pertinent
portion of which reads:

Please note that our Company (FPIC) is a pipeline operator with a government concession granted under the
Petroleum Act. It is engaged in the business of transporting petroleum products from the Batangas refineries, via
pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on gross
receipts under Section 133 of the Local Government Code of 1991 . . . .

Moreover, Transportation contractors are not included in the enumeration of contractors under Section 131,
Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax "on contractors and other
independent contractors" under Section 143, Paragraph (e) of the Local Government Code does not include the
power to levy on transportation contractors.

The imposition and assessment cannot be categorized as a mere fee authorized under Section 147 of the Local
Government Code. The said section limits the imposition of fees and charges on business to such amounts as
may be commensurate to the cost of regulation, inspection, and licensing. Hence, assuming arguendo that FPIC
is liable for the license fee, the imposition thereof based on gross receipts is violative of the aforecited provision.
The amount of P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection
and licensing. The fee is already a revenue raising measure, and not a mere regulatory imposition.4

On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be
considered engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local
Government Code.5

On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint 6 for tax refund with
prayer for writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her
capacity as City Treasurer. In its complaint, petitioner alleged,  inter alia, that: (1) the imposition and collection of
the business tax on its gross receipts violates Section 133 of the Local Government Code; (2) the authority of
cities to impose and collect a tax on the gross receipts of "contractors and independent contractors" under Sec.
141 (e) and 151 does not include the authority to collect such taxes on transportation contractors for, as defined
under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3) the City Treasurer illegally
and erroneously imposed and collected the said tax, thus meriting the immediate refund of the tax paid.7

Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section 133
(j) of the Local Government Code as said exemption applies only to "transportation contractors and persons
engaged in the transportation by hire and common carriers by air, land and water." Respondents assert that
pipelines are not included in the term "common carrier" which refers solely to ordinary carriers such as trucks,
trains, ships and the like. Respondents further posit that the term "common carrier" under the said code pertains
to the mode or manner by which a product is delivered to its destination.8

On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise:

. . . Plaintiff is either a contractor or other independent contractor.

. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions are to be
strictly construed against the taxpayer, taxes being the lifeblood of the government. Exemption may therefore be
granted only by clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387. (Exhibit A) whose concession
was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession
grant any tax exemption upon the plaintiff.

Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax Code.
Such being the situation obtained in this case (exemption being unclear and equivocal) resort to distinctions or
other considerations may be of help:

1. That the exemption granted under Sec. 133 (j) encompasses only common carriers  so as not to overburden the
riding public or commuters with taxes.  Plaintiff is not a common carrier, but a special carrier extending its services
and facilities to a single specific or "special customer" under a "special contract."

2. The Local Tax Code of 1992 was basically enacted to give more and effective local autonomy to local
governments than the previous enactments, to make them economically and financially viable to serve the people
and discharge their functions with a concomitant obligation to accept certain devolution of powers, . . . So,
consistent with this policy even franchise grantees are taxed (Sec. 137) and contractors are also taxed under Sec.
143 (e) and 151 of the Code.9

Petitioner assailed the aforesaid decision before this Court  via a petition for review. On February 27, 1995, we
referred the case to the respondent Court of Appeals for consideration and adjudication. 10 On November 29,
1995, the respondent court rendered a decision 11 affirming the trial court's dismissal of petitioner's complaint.
Petitioner's motion for reconsideration was denied on July 18, 1996. 12

Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11,
1996. 13Petitioner moved for a reconsideration which was granted by this Court in a Resolution 14 of January 22,
1997. Thus, the petition was reinstated.

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common
carrier or a transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law.

There is merit in the petition.

A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the
business of transporting persons or property from place to place, for compensation, offering his services to the
public generally.

Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public."

The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying goods for others as a public employment, and must hold
himself out as ready to engage in the transportation of goods for person generally as a business and not as a
casual occupation;

2. He must undertake to carry goods of the kind to which his business is confined;

3. He must undertake to carry by the method by which his business is conducted and over his established roads;
and

4. The transportation must be for hire. 15

Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is
engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public
employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its
services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele
does not exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals  16we ruled that:

The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity is
the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
idiom, as a "sideline"). Article 1732 . . . avoids making any distinction between a person or enterprise offering
transportation service on a regular or  scheduled basis and one offering such service on an  occasional, episodic
or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general
public," i.e., the general community or population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1877 deliberately refrained from making such
distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion
of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes:

every person that now or hereafter may own, operate. manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or
carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and power, water supply andpower
petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations
and other similar public services. (Emphasis Supplied)

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government
Code refers only to common carriers transporting goods and passengers through moving vehicles or vessels
either by land, sea or water, is erroneous.

As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction as
to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the
passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are
considered common carriers. 17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier." Thus,
Article 86 thereof provides that:

Art. 86. Pipe line concessionaire as common carrier. — A pipe line shall have the preferential right to utilize
installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining
transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for
transport, and to charge without discrimination such rates as may have been approved by the Secretary of
Agriculture and Natural Resources.

Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof
provides:

that everything relating to the exploration for and exploitation of petroleum . . . and everything relating to the
manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be
a public utility. (Emphasis Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83, it
declared:

. . . since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387 . . . . Such being the case, it is not subject to
withholding tax prescribed by Revenue Regulations No. 13-78, as amended.

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt from
the business tax as provided for in Section 133 (j), of the Local Government Code, to wit:

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

x x x           x x x          x x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water, except as provided in this Code.

The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are
illuminating:

MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line

1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." . .
.

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those
being deemed to be exempted from the taxing powers of the local government units. May we know the reason
why the transportation business is being excluded from the taxing powers of the local government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph
5. It states that local government units may not impose taxes on the business of transportation, except as
otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces
have the power to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1
percent of the gross annual receipts. So, transportation contractors who are enjoying a franchise would be subject
to tax by the province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government units on the
carrier business. Local government units may impose taxes on top of what is already being imposed by the
National Internal Revenue Code which is the so-called "common carriers tax." We do not want a duplication of this
tax, so we just provided for an exception under Section 125 [now Sec. 137] that a province may impose this tax at
a specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . . 18
It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition
of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the
National Internal Revenue Code. 19 To tax petitioner again on its gross receipts in its transportation of petroleum
business would defeat the purpose of the Local Government Code.

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated
November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.

SO ORDERED.

Bellosillo, Puno and Mendoza, JJ., concur.

Footnotes

13 Resolution dated November 11, 1996 excerpts of which are hereunder quoted:

"The petition is unmeritorious

"As correctly ruled by respondent appellate court, petitioner is not a common carrier as it is not offering its
services to the public.

"Art. 1732 of the Civil Code defines Common Carriers as: persons, corporations, firm or association engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public.

"We sustain the view that petitioner is a special carrier. Based on the facts on hand, it appears that petitioner is
not offering its services to the public.

"We agree with the findings of the appellate court that the claim for exemption from taxation must be strictly
construed against the taxpayer. The present understanding of the concept of "common carries" does not include
carriers of petroleum using pipelines. It is highly unconventional to say that the business of transporting petroleum
through pipelines involves "common carrier" business. The Local Government Code intended to give exemptions
from local taxation to common carriers transporting goods and passengers through moving vehicles or vessels
and not through pipelines. The term common carrier under Section 133 (j) of the Local Government Code must be
given its simple and ordinary or generally accepted meaning which definitely not include operators of pipelines."

7. G.R. No. L-25599             April 4, 1968

HOME INSURANCE COMPANY, plaintiff-appellee, 
vs. AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING CORPORATION, defendants, 
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.
William H. Quasha and Associates for plaintiff-appellee.
Ross, Selph, Salcedo and Associates for defendant-appellant.
BENGZON, J.P., J.:
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740 jute bags of
Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers 1 and 2, both dated
January 17, 1963. The cargo, consigned to San Miguel Brewery, Inc., now San Miguel Corporation, and insured
by Home Insurance Company for $202,505, arrived in Manila on March 7, 1963 and was discharged into the
lighters of Luzon Stevedoring Company. When the cargo was delivered to consignee San Miguel Brewery Inc.,
there were shortages amounting to P12,033.85, causing the latter to lay claims against Luzon Stevedoring
Corporation, Home Insurance Company and the American Steamship Agencies, owner and operator of SS
Crowborough.

Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 — the insurance
value of the loss, as full settlement of the claim. Having been refused reimbursement by both the Luzon
Stevedoring Corporation and American Steamship Agencies, Home Insurance Company, as subrogee to the
consignee, filed against them on March 6, 1964 before the Court of First Instance of Manila a complaint for
recovery of P14,870.71 with legal interest, plus attorney's fees.

In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in the same
quantity and quality that it had received the same from the carrier. It also claimed that plaintiff's claim had
prescribed under Article 366 of the Code of Commerce stating that the claim must be made within 24 hours from
receipt of the cargo.

American Steamship Agencies denied liability by alleging that under the provisions of the Charter party referred to
in the bills of lading, the charterer, not the shipowner, was responsible for any loss or damage of the cargo.
Furthermore, it claimed to have exercised due diligence in stowing the goods and that as a mere forwarding
agent, it was not responsible for losses or damages to the cargo.

On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring Corporation, having
found the latter to have merely delivered what it received from the carrier in the same condition and quality, and
ordered American Steamship Agencies to pay plaintiff P14,870.71 with legal interest plus P1,000 attorney's fees.
Said court cited the following grounds:

(a) The non-liability claim of American Steamship Agencies under the charter party contract is not tenable
because Article 587 of the Code of Commerce makes the ship agent also civilly liable for damages in favor of third
persons due to the conduct of the captain of the carrier;
(b) The stipulation in the charter party contract exempting the owner from liability is against public policy under
Article 1744 of the Civil Code;

(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at fault or negligent
under Article 1735 of the Civil Code unless they prove extraordinary diligence, and they cannot by contract
exempt themselves from liability resulting from their negligence or that of their servants; and

(d) When goods are delivered to the carrier in good order and the same are in bad order at the place of
destination, the carrier is  prima facie liable.

Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal brings forth
for determination this legal issue: Is the stipulation in the charter party of the owner's non-liability valid so as to
absolve the American Steamship Agencies from liability for loss?

The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that the bills of lading
shall be governed by and subject to the terms and conditions of the charter party, if any, otherwise, the bills of
lading prevail over all the agreements.2 On the of the bills are stamped "Freight prepaid as per charter party.
Subject to all terms, conditions and exceptions of charter party dated London, Dec. 13, 1962."

A perusal of the charter party3 referred to shows that while the possession and control of the ship were not entirely
transferred to the charterer,4 the vessel was chartered to its full and complete capacity (Exh. 3). Furthermore, the,
charter had the option to go north or south or vice-versa,5 loading, stowing and discharging at its risk and
expense.6Accordingly, the charter party contract is one of affreightment over the whole vessel rather than a
demise. As such, the liability of the shipowner for acts or negligence of its captain and crew, would remain in the
absence of stipulation.

Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to the goods
caused by personal want of due diligence on its part or its manager to make the vessel in all respects seaworthy
and to secure that she be properly manned, equipped and supplied or by the personal act or default of the owner
or its manager. Said paragraph, however, exempts the owner of the vessel from any loss or damage or delay
arising from any other source, even from the neglect or fault of the captain or crew or some other person
employed by the owner on board, for whose acts the owner would ordinarily be liable except for said paragraph..

Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587 of the Code
of Commerce making the ship agent civilly liable for indemnities suffered by third persons arising from acts or
omissions of the captain in the care of the goods and Article 1744 of the Civil Code under which a stipulation
between the common carrier and the shipper or owner limiting the liability of the former for loss or destruction of
the goods to a degree less than extraordinary diligence is valid provided it be reasonable, just and not contrary to
public policy. The release from liability in this case was held unreasonable and contrary to the public policy on
common carriers.

The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 Under American
jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only,
becomes a private carrier.8 As a private carrier, a stipulation exempting the owner from liability for the negligence
of its agent is not against public policy,9 and is deemed valid.

Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where
the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner
from liability for loss due to the negligence of its agent would be void only if the strict public policy governing
common carriers is applied. Such policy has no force where the public at large is not involved, as in the case of a
ship totally chartered for the use of a single party.

And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the charterer, as
shipper, is in fact and legal contemplation merely a receipt and a document of title not a contract, for the contract
is the charter party.10 The consignee may not claim ignorance of said charter party because the bills of lading
expressly referred to the same. Accordingly, the consignees under the bills of lading must likewise abide by the
terms of the charter party. And as stated, recovery cannot be had thereunder, for loss or damage to the cargo,
against the shipowners, unless the same is due to personal acts or negligence of said owner or its manager, as
distinguished from its other agents or employees. In this case, no such personal act or negligence has been
proved.

WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from liability to plaintiff.
No costs. So ordered

8. G.R. No. L-61461 August 21, 1987

EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners, 
vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.
CARDINAL SHIPPING CORPORATION, petitioner, 
vs.
HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS, INC., respondents.
GANCAYCO, J.:

The question that is posed in these petitions for review is whether the sea can be considered as a continuation of
the highway. The corollary issue is whether a land transportation company can be authorized to operate a ferry
service or coastwise or interisland shipping service along its authorized route as an incident to its franchise
without the need of filing a separate application for the same.
The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic corporation engaged in
the land transportation business with PUB service for passengers and freight and various certificates for public
conveniences CPC to operate passenger buses from Metro Manila to Bicol Region and Eastern Samar. On March
27,1980 PANTRANCO through its counsel wrote to Maritime Industry Authority (MARINA) requesting authority to
lease/purchase a vessel named M/V "Black Double" "to be used for its project to operate a ferryboat service from
Matnog, Sorsogon and Allen, Samar that will provide service to company buses and freight trucks that have to
cross San Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot
give due course to the request on the basis of the following observations:

1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and Epitacio San Pablo; MARINA
policies on interisland shipping restrict the entry of new operators to Liner trade routes where these are
adequately serviced by existing/authorized operators.

2. Market conditions in the proposed route cannot support the entry of additional tonnage; vessel acquisitions
intended for operations therein are necessarily limited to those intended for replacement purposes only. 2

PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million pesos. It wrote
the Chairman of the Board of Transportation (BOT) through its counsel, that it proposes to operate a ferry service
to carry its passenger buses and freight trucks between Allen and Matnog in connection with its trips to Tacloban
City invoking the case of Javellana vs. Public Service Commission. 3 PANTRANCO claims that it can operate a
ferry service in connection with its franchise for bus operation in the highway from Pasay City to Tacloban City "for
the purpose of continuing the highway, which is interrupted by a small body of water, the said proposed ferry
operation is merely a necessary and incidental service to its main service and obligation of transporting its
passengers from Pasay City to Tacloban City. Such being the case ... there is no need ... to obtain a separate
certificate for public convenience to operate a ferry service between Allen and Matnog to cater exclusively to its
passenger buses and freight trucks.4

Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting Chairman Jose
C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the application for hearing on Oct. 1,
1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO from operating the MV "Black Double"
otherwise it will be cited to show cause why its CPC should not be suspended or the pending application denied. 6

Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are franchise holders
of the ferry service in this area interposed their opposition. They claim they adequately service the PANTRANCO
by ferrying its buses, trucks and passengers. BOT then asked the legal opinion from the Minister of Justice
whether or not a bus company with an existing CPC between Pasay City and Tacloban City may still be required
to secure another certificate in order to operate a ferry service between two terminals of a small body of water. On
October 20, 1981 then Minister of Justice Ricardo Puno rendered an opinion to the effect that there is no need for
bus operators to secure a separate CPC to operate a ferryboat service holding as follows:

Further, a common carrier which has been granted a certificate of public convenience is expected to provide
efficient, convenient and adequate service to the riding public. (Hocking Valley Railroad Co. vs. Public Utilities
Commission, 1 10 NE 521; Louiseville and NR Co. vs. Railroad Commissioners, 58 SO 543) It is the right of the
public which has accepted the service of a public utility operator to demand that the service should be conducted
with reasonable efficiency. (Almario, supra, citing 73 C.J.S. 990-991) Thus, when the bus company in the case at
bar proposes to add a ferry service to its Pasay Tacloban route, it merely does so in the discharge of its duty
under its current certificate of public convenience to provide adequate and convenient service to its riders.
Requiring said bus company to obtain another certificate to operate such ferry service when it merely forms a part
— and constitutes an improvement — of its existing transportation service would simply be duplicitous and
superfluous. 7

Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of its CPC to
operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect the same in this wise:

Let the original Certificate of public convenience granted to Pantranco South Express Co., Inc. be amended to
embody the grant of authority to operate a private ferry boat service as one of the conditions for the grant of the
certificate subject to the condition that the ferryboat shall be for the exclusive use of Pantranco buses, its
passengers and freight trucks, and should it offer itself to the public for hire other than its own passengers, it must
apply for a separate certificate of public convenience as a public ferry boat service, separate and distinct from its
land transport systems. 8

Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration of said
decision and San Pablo filed a supplemental motion for reconsideration that were denied by the BOT on July 21,
1981. 9

Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary injunction 10 seeking
the revocation of said decision, and pending consideration of the petition, the issuance of a restraining order or
preliminary injunction against the operation by PANTRANCO of said ferry service. San Pablo raised the following
issues:

A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE PROCESS, THE RULES OF
PROCEDURE AND SECTION 16 (m) OF THE PUBLIC SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT
CASE THE DECISION DATED OCTOBER 23, 1981 WHICH MOTU PROPIOAMENDED RESPONDENT
PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION OF A SHIPPING SERVICE
ON THE ROUTE MATNOG, SORSOGON — ALLEN, SAMAR — EVEN AS THERE MUST BE A FORMAL
APPLICATION FOR AMENDMENT AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING
AMENDMENT IS PROPER?
B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF OCTOBER 23, 1981, THAT THE
SEA FROM THE PORT OF MATNOG, SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN, SAMAR
ISLAND, OR FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR CONTINUATION OF THE
HIGHWAY — IT BEING 23 KILOMETERS OF ROUGH AND OPEN SEA AND ABOUT 2 HOURS TRAVEL TIME
REQUIRING BIG INTER-ISLAND VESSELS, NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN
FERRY SERVICE?

C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT PANTRANCO'S VESSEL
M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER, NOT A PUBLIC FERRY OPERATING FOR PUBLIC
SERVICE (ASSUMING THAT THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF
HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE FARES AND CATERS TO THE
PUBLIC EVEN FOR A LIMITED CLIENTELE?

D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO
OPERATE A SHIPPING SERVICE IN THE FACE OF THE LATTER'S CONTENTION AS AN AFTER THOUGH
THAT IT NEED NOT APPLY THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PRE-REQUISITE
MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO ACQUIRE A VESSEL UNDER ITS
MEMORANDUM CIRCULAR NO. 8-A AS WELL AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY
SHIPPING AUTHORIZATION MAY BE GRANTED UNDER BOT — MARINA AGREEMENT OF AUGUST 10,
1976 AND FEBRUARY 26, 1982?

E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO

OPERATE A SHIPPING SERVICE ON A ROUTE ADEQUATELY SERVICED IF NOT ALREADY "SATURATED"
WITH THE SERVICES OF TWO 12) EXISTING OPERATORS PETITIONERS AND CARDINAL SHIPPING
CORP.) IN VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR RULE'? 11

By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely:

a. the decision did not conform to the procedures laid down by law for an amendment of the original certificate of
public convenience, and the authority to operate a private ferry boat service to PANTRANCO was issued without
ascertaining the established essential requisites for such grant, hence, violative of due process requirements;

b. the grant to PANTRANCO of authority to operate a ferryboat service as a private carrier on said route
contravenes existing government policies relative to the rationalization of operations of all water transport utilities;

c. it contravenes the memorandum of agreement between MARINA and the Board of Transportation; d. the grant
of authority to operate a ferry service as a private carrier is not feasible; it lessens PANTRANCO's liability to
passengers and cargo to a degree less than extraordinary diligence?

e. PANTRANCO is not a private carrier when it operates its ferry service;

f. it runs counter to the "old operator" doctrine; and

g. the operation by PANTRANCO of the ferry service cnstitutes undue competition.

The foregoing considerations constitutes the substantial errors committed by the respondent Board which would
more than amply justify review of the questioned decision by this Honorable Court.12

Both cases were consolidated and are now admitted for decision.

The resolution of all said issues raised revolves on the validity of the questioned BOT decision.

The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a part of the
authority originally granted PANTRANCO in the following manner:

A ferry service, in law, is treated as a continuation of the highway from one side of the water over which passes to
the other side for transportation of passengers or of travellers with their teams vehicles and such other property
as, they may carry or have with them. (U.S. vs. Pudget Sound Nev. Co. DC Washington, 24 F. Supp. 431). It
maybe said to be a necessary service of a specially constructed boat to carry passengers and property across
rivers or bodies of water from a place in one shore to a point conveniently opposite on the other shore and
continuation of the highway making a connection with the thoroughfare at each terminal (U.S. vs. Canadian Pac.
N.Y. Co. 4 P. Supp, 85). It comprises not merely the privilege of transportation but also the use for that purpose of
the respective landings with outlets therefrom. (Nole vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service
maybe a public ferry or a private ferry. A public ferry service is one which all the public have the right to resort to
and for which a regular fare is established and the ferryman is a common carrier be inbound to take an who apply
and bound to keep his ferry in operation and good repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry
(private) service is mainly for the use of the owner and though he may take pay for ferriage, he does not follow it
as a business. His ferry is not open to the public at its demand and he may or may not keep it in operation
(Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696), Harrison, 140 Ark 158; 215 S.W. 698).

The ferry boat service of Pantranco is a continuation of the highway traversed by its buses from Pasay City to
Samar, Leyte passing through Matnog (Sorsogon) through San Bernardino Strait to Alien (Samar). It is a private
carrier because it will be used exclusively to transport its own buses, passengers and freight trucks traversing the
said route. It will cater exclusively to the needs of its own clientele (passengers on board- Pantranco buses) and
will not offer itself indiscriminately for hire or for compensation to the general public. Legally therefore, Pantranco
has the right to operate the ferry boat M/V BLACK DOUBLE, along the route from Matnog (Sorsogon) to Allen
(Samar) and vice versa for the exclusive use of its own buses, passengers and freight trucks without the need of
applying for a separate certificate of public convenience or provisional authority. Since its operation is an integral
part of its land transport system, its original certificate of public convenience should be amended to include the
operation of such ferryboat for its own exclusive use

In Javellana 14 this Court recited the following definition of ferry :

The term "ferry" implied the continuation by means of boats, barges, or rafts, of a highway or the connection of
highways located on the opposite banks of a stream or other body of water. The term necessarily implies
transportation for a short distance, almost invariably between two points, which is unrelated to other
transportation .(Emphasis supplied)

The term "ferry" is often employed to denote the right or franchise granted by the state or its authorized
mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and to
charge toll for the use thereof by the public. In this sense it has also been defined as a privilege, a liberty, to take
tolls for transporting passengers and goods across a lake or stream or some other body of water, with no
essential difference from a bridge franchise except as to the mode of transportation, 22 Am. Jur. 553.

A "ferry" has been defined by many courts as "a public highway or thoroughfare across a stream of water or river
by boat instead of a bridge." (St. Clare Country v. Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed.
518; etc.)

The term ferry is often employed to denote the right or franchise granted by the state or its authorized
mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and to
charge toll for the use thereof by the public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864,
Ann. Cas. 1914C 1179; etc.) (Emphasis supplied)

"Ferry" is service necessity for common good to reach point across a stream lagoon, lake, or bay.  (U.S. vs.
Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'

"Ferry" properly means a place of transit across a river or arm of the sea, but in law it is treated as a franchise,
and defined as the exclusive right to carry passengers across a river, or arm of the sea, from one vill to another,
or to connect a continuous line of road leading from township or vill to another. (Canadian Pac. Ry. Co. vs. C.C.
A. Wash. 73 F. 2d. 831, 832)'

Includes various waters: (1) But an arm of the sea may include various subordinate descriptions of waters, where
the tide ebbs and flows. It may be a river, harbor, creek, basin, or bay; and it is sometimes used to designate very
extensive reaches of waters within the projecting capes or points or a country. (See Rex vs. Bruce, Deach C.C.
1093). (2) In an early case the court said: "The distinction between rivers navigable and not navigable, that is,
where the sea does, or does not, ebb and flow, is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The
former are called arms of the sea, while the latter pass under the denomination of private or inland rivers" Adams
vs. Pease 2 Conn. 481, 484. (Emphasis supplied)

In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo  and Municipality of
Gattaran vs. Elizaga  17 this Court considered as ferry service such water service that crosses rivers.

However, in Javellana We made clear distinction between a ferry service and coastwise or interisland service by
holding that:

We are not unmindful of the reasons adduced by the Commission in considering the motorboat service between
Calapan and Batangas as ferry; but from our consideration of the law as it stands, particularly Commonwealth Act
No. 146, known as the Public Service Act and the provisions of the Revised Administrative Code regarding
municipal ferries and those regarding the jurisdiction of the Bureau of Customs over documentation, registration,
licensing, inspection, etc. of steamboats, motorboats or motor vessels, and the definition of ferry as above quoted
we have the impression and we are inclined to believe that the Legislature intended ferry to mean the service
either by barges or rafts, even by motor or steam vessels, between the banks of a river or stream to continue the
highway which is interrupted by the body of water, or in some cases to connect two points on opposite shores of
an arm of the sea such as bay or lake which does not involve too great a distance or too long a time to navigate
But where the line or service involves crossing the open sea like the body of water between the province of
Batangas and the island of Mindoro which the oppositors describe thus "the intervening waters between Calapan
and Batangas are wide and dangerous with big waves where small boat barge, or raft are not adapted to the
service," then it is more reasonable to regard said line or service as more properly belonging to interisland or
coastwise trade. According to the finding of the Commission itself the distance between Calapan is about 24
nautical miles or about 44.5 kilometers. We do not believe that this is the short distance contemplated by the
Legislature in referring to ferries whether within the jurisdiction of a single municipality or ferries between two
municipalities or provinces. If we are to grant that water transportation between Calapan and Batangas is ferry
service, then there would be no reason for not considering the same service between the different islands of the
Philippines, such as Boac Marinduque and Batangas; Roxas City of Capiz and Romblon; Cebu City, Cebu and
Ormoc, Leyte; Guian, Samar and Surigao, Surigao; and Dumaguete, Negros Oriental and Oroquieta or Cagayan
de Oro.

The Commission makes the distinction between ferry service and motorship in the coastwise trade, thus:

A ferry service is distinguished from a motorship or motorboat service engaged in the coastwise trade in that the
latter is intended for the transportation of passengers and/or freight for hire or compensation between ports or
places in the Philippines without definite routes or lines of service.

We cannot agree. The definiteness of the route of a boat is not the deciding factor. A boat of say the William
Lines, Inc. goes from Manila to Davao City via Cebu, Tagbilaran, Dumaguete, Zamboanga, every week. It has a
definite route, and yet it may not for that reason be regarded as engaged in ferry service. Again, a vessel of the
Compania Maritima makes the trip from Manila to Tacloban and back, twice a week. Certainly, it has a definite
route. But that service is not ferry service, but rather interisland or coastwise trade.

We believe that it will be more in consonance with the spirit of the law to consider steamboat or motorboat service
between the different islands, involving more or less great distance and over more or less turbulent and
dangerous waters of the open sea, to be coastwise or inter-island service. Anyway, whether said service between
the different islands is regarded as ferry service or coastwise trade service, as long as the water craft used are
steamboats, motorboats or motor vessels, the result will be the same as far as the Commission is concerned.
" 18 (Emphasis supplied)

This Court takes judicial notice of the fact, and as shown by an examination of the map of the Philippines, that
Matnog which is on the southern tip of the island of Luzon and within the province of Sorsogon and Allen which is
on the northeastern tip of the island of Samar, is traversed by the San Bernardino Strait which leads towards the
Pacific Ocean. The parties admit that the distance between Matnog and Allen is about 23 kilometers which maybe
negotiated by motorboat or vessel in about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours
according to petitioners. As the San Bernardino Strait which separates Matnog and Allen leads to the ocean it
must at times be choppy and rough so that it will not be safe to navigate the same by small boats or barges but
only by such steamboats or vessels as the MV "Black Double. 19

Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from
Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under no
circumstance can the sea between Matnog and Allen be considered a continuation of the highway. While a ferry
boat service has been considered as a continuation of the highway when crossing rivers or even lakes, which are
small body of waters - separating the land, however, when as in this case the two terminals, Matnog and Allen are
separated by an open sea it can not be considered as a continuation of the highway. Respondent PANTRANCO
should secure a separate CPC for the operation of an interisland or coastwise shipping service in accordance with
the provisions of law. Its CPC as a bus transportation cannot be merely amended to include this water service
under the guise that it is a mere private ferry service.

The contention of private respondent PANTRANCO that its ferry service operation is as a private carrier, not as a
common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucks is absurd.
PANTRANCO does not deny that it charges its passengers separately from the charges for the bus trips and
issues separate tickets whenever they board the MV "Black Double" that crosses Matnog to
Allen, 20 PANTRANCO cannot pretend that in issuing tickets to its passengers it did so as a private carrier and not
as a common carrier. The Court does not see any reason why inspite of its amended franchise to operate a
private ferry boat service it cannot accept walk-in passengers just for the purpose of crossing the sea between
Matnog and Allen. Indeed evidence to this effect has been submitted. 21 What is even more difficult to
comprehend is that while in one breath respondent PANTRANCO claims that it is a private carrier insofar as the
ferryboat service is concerned, in another breath it states that it does not thereby abdicate from its obligation as a
common carrier to observe extraordinary diligence and vigilance in the transportation of its passengers and
goods. Nevertheless, considering that the authority granted to PANTRANCO is to operate a private ferry, it can
still assert that it cannot be held to account as a common carrier towards its passengers and cargo. Such an
anomalous situation that will jeopardize the safety and interests of its passengers and the cargo owners cannot be
allowed.

What appears clear from the record is that at the beginning PANTRANCO planned to operate such ferry boat
service between Matnog and Alien as a common carrier so it requested authority from MARINA to purchase the
vessel M/V "Black Double 22 in accordance with the procedure provided for by law for such application for a
certificate of public convenience. 23 However when its request was denied as the said routes "are adequately
serviced by existing/authorized operators, 24 it nevertheless purchased the vessel and started operating the same.
Obviously to go about this obstacle to its operation, it then contrived a novel theory that what it proposes to
operate is a private ferryboat service across a small body of water for the exclusive use of its buses, trucks and
passengers as an incident to its franchise to convey passengers and cargo on land from Pasay City to Tacloban
so that it believes it need not secure a separate certificate of public convenience. 25 Based on this representation,
no less than the Secretary of Justice was led to render an affirmative opinion on October 20, 1981, 26 followed a
few days later by the questioned decision of public respondent of October 23, 1981. 27 Certainly the Court cannot
give itsimprimatur to such a situation.

Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat service but a
coastwise or interisland shipping service. Before private respondent may be issued a franchise or CPC for the
operation of the said service as a common carrier, it must comply with the usual requirements of filing an
application, payment of the fees, publication, adducing evidence at a hearing and affording the oppositors the
opportunity to be heard, among others, as provided by law. 28

WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of Transportation
(BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982 in the same case denying
the motions for reconsideration filed by petitioners are hereby Reversed and set aside and declared null and void.
Respondent PANTRANCO is hereby permanently enjoined from operating the ferryboat service and/or
coastwise/interisland services between Matnog and Allen until it shall have secured the appropriate Certificate of
Public Convenience (CPC) in accordance with the requirements of the law, with costs against respondent
PANTRANCO.

SO ORDERED.

9. [G.R. No. 112287. December 12, 1997]

NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS SHIPPING,
INC., respondents.
[G.R. No. 112350. December 12, 1997]
VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL STEEL
CORPORATION, respondents.
DECISION

PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its owners responsibility for
damage to the cargo and its liability for demurrage and attorneys fees. The Court also reiterates the well-known
rule that findings of facts of trial courts, when affirmed by the Court of Appeals, are binding on this Court.

The Case

Before us are two separate petitions for review filed by National Steel Corporation (NSC) and Vlasons Shipping,
Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of Appeals. [1] The Court of Appeals
modified the decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 23317. The
RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing the
complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim as follows:

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal rate on both
amounts from April 7, 1976 until the same shall have been fully paid;

2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and

3. Cost of suit.

SO ORDERED. [2]

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for
demurrage to P44,000.00 and deleting the award for attorneys fees and expenses of litigation. Except as thus
modified, the decision is AFFIRMED. There is no pronouncement as to costs.

SO ORDERED. [3]

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo or shipment
for the general public. Its services are available only to specific persons who enter into a special contract of
charter party with its owner. It is undisputed that the ship is a private carrier. And it is in this capacity that its
owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract of voyage charter hire with
National Steel Corporation.

The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping,
Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit B; also Exhibit 1) whereby NSC hired
VSIs vessel, the MV VLASONS I to make one (1) voyage to load steel products at Iligan City and discharge them
at North Harbor, Manila, under the following terms and conditions, viz:

1. x x x x x x.

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.

3. x x x x x x

4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of Lading within fifteen
(15) days.

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive hours,

Sundays and Holidays Included).

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

8. x x x x x x

9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not responsible for
losses/damages except on proven willful negligence of the officers of the vessel.

10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized Charter Party
Agreement shall form part of this Contract.

x x x x x x x x x

The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the NANYOZAI Charter
Party which stands for Freight In and Out including Stevedoring and Trading, which means that the handling,
loading and unloading of the cargoes are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI
Charter Party, it states, Charterers to load, stow and discharge the cargo free of risk and expenses to owners. x x
x(Underscoring supplied).

Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of the voyage, exercise
due diligence to make the vessel seaworthy and properly manned, equipped and supplied and to make the holds
and all other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation. Owners shall not be liable for loss of or damage of the cargo arising or resulting
from: unseaworthiness unless caused by want of due diligence on the part of the owners to make the vessel
seaworthy, and to secure that the vessel is properly manned, equipped and supplied and to make the holds and
all other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and preservation; xxx;
perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in bulk or weight or any other
loss or damage arising from inherent defect, quality or vice of the cargo; insufficiency of packing; xxx; latent
defects not discoverable by due diligence; any other cause arising without the actual fault or privity of Owners or
without the fault of the agents or servants of owners.

Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be responsible for split,
chafing and/or any damage unless caused by the negligence or default of the master and crew.

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV VLASONS I
loaded at plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of tinplates and 92 packages of hot rolled
sheets or a total of 1,769 packages with a total weight of about 2,481.19 metric tons for carriage to Manila. The
shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of the
vessel[,] acknowledged receipt of the cargo on board and signed the corresponding bill of lading, B.L.P.P. No.
0233 (Exhibit D) on August 8, 1974.

(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The following day,
August 13, 1974, when the vessels three (3) hatches containing the shipment were opened by plaintiffs agents,
nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo was
discharged and unloaded by stevedores hired by the Charterer. Unloading was completed only on August 24,
1974 after incurring a delay of eleven (11) days due to the heavy rain which interrupted the unloading
operations. (Exhibit E)

(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the shipment by the
Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit G),
MASCO made a report of its ocular inspection conducted on the cargo, both while it was still on board the vessel
and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO
reported that it found wetting and rusting of the packages of hot rolled sheets and metal covers of the tinplates;
that tarpaulin hatch covers were noted torn at various extents; that container/metal casings of the skids were
rusting all over. MASCO ventured the opinion that rusting of the tinplates was caused by contact with SEA
WATER sustained while still on board the vessel as a consequence of the heavy weather and rough seas
encountered while en route to destination (Exhibit F). It was also reported that MASCOs surveyors drew at
random samples of bad order packing materials of the tinplates and delivered the same to the M.I.T. Testing
Laboratories for analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report No. 1770 (Exhibit I)
which in part, states, The analysis of bad order samples of packing materials xxx shows that wetting was caused
by contact with SEA WATER.

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant its
claim for damages suffered due to the downgrading of the damaged tinplates in the amount of P941,145.18. Then
on October 3, 1974, plaintiff formally demanded payment of said claim but defendant VSI refused and failed to
pay.Plaintiff filed its complaint against defendant on April 21, 1976 which was docketed as Civil Case No. 23317,
CFI, Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a result of
the act, neglect and default of the master and crew in the management of the vessel as well as the want of due
diligence on the part of the defendant to make the vessel seaworthy and to make the holds and all other parts of
the vessel in which the cargo was carried, fit and safe for its reception, carriage and preservation -- all in violation
of defendants undertaking under their Contract of Voyage Charter Hire.

(7) In its answer, defendant denied liability for the alleged damage claiming that the MV VLASONS I was
seaworthy in all respects for the carriage of plaintiffs cargo; that said vessel was not a common carrier inasmuch
as she was under voyage charter contract with the plaintiff as charterer under the charter party; that in the course
of the voyage from Iligan City to Manila, the MV VLASONS I encountered very rough seas, strong winds and
adverse weather condition, causing strong winds and big waves to continuously pound against the vessel and
seawater to overflow on its deck and hatch covers; that under the Contract of Voyage Charter Hire, defendant
shall not be responsible for losses/damages except on proven willful negligence of the officers of the vessel, that
the officers of said MV VLASONS I exercised due diligence and proper seamanship and were not willfully
negligent; that furthermore the Voyage Charter Party provides that loading and discharging of the cargo was on
FIOST terms which means that the vessel was free of risk and expense in connection with the loading and
discharging of the cargo; that the damage, if any, was due to the inherent defect, quality or vice of the cargo or to
the insufficient packing thereof or to latent defect of the cargo not discoverable by due diligence or to any other
cause arising without the actual fault or privity of defendant and without the fault of the agents or servants of
defendant; consequently, defendant is not liable; that the stevedores of plaintiff who discharged the cargo in
Manila were negligent and did not exercise due care in the discharge of the cargo; and that the cargo was
exposed to rain and seawater spray while on the pier or in transit from the pier to plaintiffs warehouse after
discharge from the vessel; and that plaintiffs claim was highly speculative and grossly exaggerated and that the
small stain marks or sweat marks on the edges of the tinplates were magnified and considered total loss of the
cargo. Finally, defendant claimed that it had complied with all its duties and obligations under the Voyage Charter
Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under the Voyage Charter Hire
Contract, plaintiff failed and refused to pay the agreed charter hire of P75,000.00 despite demands made by
defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum of P8,000.00 per
day for demurrage. The vessel was on demurrage for eleven (11) days in Manila waiting for plaintiff to discharge
its cargo from the vessel. Thus, plaintiff was liable to pay defendant demurrage in the total amount of P88,000.00.

(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay defendant
attorneys fees and all expenses of litigation in the amount of not less than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with the following findings which were
set forth in its decision:

(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and is available for hire
only under special contracts of charter party as in this particular case.

(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), the MV VLASONS I
was covered by the required seaworthiness certificates including the Certification of Classification issued by an
international classification society, the NIPPON KAIJI KYOKAI (Exh. 4); Coastwise License from the Board of
Transportation (Exh. 5); International Loadline Certificate from the Philippine Coast Guard (Exh. 6); Cargo Ship
Safety Equipment Certificate also from the Philippine Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8);
Certificate of Inspection by the Philippine Coast Guard (Exh. 12); and Certificate of Approval for Conversion
issued by the Bureau of Customs (Exh. 9). That being a vessel engaged in both overseas and coastwise trade,
the MV VLASONS I has a higher degree of seaworthiness and safety.

(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage Charter Hire, the
MV VLASONS I underwent drydocking in Cebu and was thoroughly inspected by the Philippine Coast Guard. In
fact, subject voyage was the vessels first voyage after the drydocking. The evidence shows that the MV
VLASONS I was seaworthy and properly manned, equipped and supplied when it undertook the voyage. It had all
the required certificates of seaworthiness.

(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were covered
by hatchboards which were in turn covered by two or double tarpaulins. The hatch covers were water
tight.Furthermore, under the hatchboards were steel beams to give support.

(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by evidence. The
provisions of the Civil Code on common carriers pursuant to which there exists a presumption of negligence in
case of loss or damage to the cargo are not applicable. As to the damage to the tinplates which was allegedly due
to the wetting and rusting thereof, there is unrebutted testimony of witness Vicente Angliongto that tinplates sweat
by themselves when packed even without being in contract (sic) with water from outside especially when the
weather is bad or raining. The rust caused by sweat or moisture on the tinplates may be considered as a loss or
damage but then, defendant cannot be held liable for it pursuant to Article 1734 of the Civil Case which exempts
the carrier from responsibility for loss or damage arising from the character of the goods x x x. All the 1,769 skids
of the tinplates could not have been damaged by water as claimed by plaintiff. It was shown as claimed by plaintiff
that the tinplates themselves were wrapped in kraft paper lining and corrugated cardboards could not be affected
by water from outside.

(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not closing the hatch
openings of the MV VLASONS I when rains occurred during the discharging of the cargo thus allowing rainwater
to enter the hatches. It was proven that the stevedores merely set up temporary tents to cover the hatch openings
in case of rain so that it would be easy for them to resume work when the rains stopped by just removing the tent
or canvas.Because of this improper covering of the hatches by the stevedores during the discharging and
unloading operations which were interrupted by rains, rainwater drifted into the cargo through the hatch
openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter Party which was expressly made part of the
Contract of Voyage Charter Hire, the loading, stowing and discharging of the cargo is the sole responsibility of the
plaintiff charterer and defendant carrier has no liability for whatever damage may occur or maybe [sic] caused to
the cargo in the process.

(g) It was also established that the vessel encountered rough seas and bad weather while en route from Iligan
City to Manila causing sea water to splash on the ships deck on account of which the master of the vessel (Mr.
Antonio C. Dumlao) filed a Marine Protest on August 13, 1974 (Exh. 15) which can be invoked by defendant as a
force majeure that would exempt the defendant from liability.

(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter Hire contract
that it was to insure the cargo because it did not. Had plaintiff complied with the requirement, then it could have
recovered its loss or damage from the insurer. Plaintiff also violated the charter party contract when it loaded not
only steel products, i.e. steel bars, angular bars and the like but also tinplates and hot rolled sheets which are high
grade cargo commanding a higher freight. Thus plaintiff was able to ship high grade cargo at a lower freight rate.

(I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4 thereof, fixed the
freight at P30.00 per metric ton payable to defendant carrier upon presentation of the bill of lading within fifteen
(15) days. Plaintiff has not paid the total freight due of P75,000.00 despite demands. The evidence also showed
that the plaintiff was required and bound under paragraph 7 of the same Voyage Charter Hire contract to pay
demurrage of P8,000.00 per day of delay in the unloading of the cargoes. The delay amounted to eleven (11)
days thereby making plaintiff liable to pay defendant for demurrage in the amount of P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
 I

The trial court erred in finding that the MV VLASONS I was seaworthy, properly manned, equipped and supplied,
and that there is no proof of willful negligence of the vessels officers.

II

The trial court erred in finding that the rusting of NSCs tinplates was due to the inherent nature or character of the
goods and not due to contact with seawater.

III

The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSCs
shipment.

IV

The trial court erred in exempting VSI from liability on the ground of force majeure.

The trial court erred in finding that NSC violated the contract of voyage charter hire.

VI

The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to VSI.[4]

As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the demurrage
from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of litigation. NSC and VSI
filed separate motions for reconsideration. In a Resolution[5] dated October 20, 1993, the appellate court denied
both motions. Undaunted, NSC and VSI filed their respective petitions for review before this Court. On motion of
VSI, the Court ordered on February 14, 1994 the consolidation of these petitions.[6]

The Issues

In its petition[7] and memorandum,[8] NSC raises the following questions of law and fact:

Questions of Law

1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays caused by weather
interruption;

2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11 and 12) were admissible in
evidence and constituted evidence of the vessels seaworthiness at the beginning of the voyages; and

3. Whether or not a charterers failure to insure its cargo exempts the shipowner from liability for cargo damage.

Questions of Fact

1. Whether or not the vessel was seaworthy and cargo-worthy;

2. Whether or not vessels officers and crew were negligent in handling and caring for NSCs cargo;

3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence, rusted on their own; and

(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of NSCs tinplates.

In its separate petition, [9] VSI submits for the consideration of this Court the following alleged errors of the CA:

A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage
from P88,000.00 to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for attorneys
fees and expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its memorandum: [10]

I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to which there
exist[s] a presumption of negligence against the common carrier in case of loss or damage to the cargo are
applicable to a private carrier.

II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the Nanyozai
Charter, are valid and binding on both contracting parties.

The foregoing issues raised by the parties will be discussed under the following headings:

1. Questions of Fact

2. Effect of NSCs Failure to Insure the Cargo

3. Admissibility of Certificates Proving Seaworthiness

4. Demurrage and Attorneys Fees.

The Courts Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a private
carrier. The resolution of this preliminary question determines the law, standard of diligence and burden of proof
applicable to the present case.

Article 1732 of the Civil Code defines a common carrier as persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public. It has been held that the true test of a common carrier is the carriage of
passengers or goods, provided it has space, for all who opt to avail themselves of its transportation service for a
fee. [11] A carrier which does not qualify under the above test is deemed a private carrier. Generally, private
carriage is undertaken by special agreement and the carrier does not hold himself out to carry goods for the
general public. The most typical, although not the only form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the shipowner, obtains the use and service of all or some part
of a ship for a period of time or a voyage or voyages. [12]

In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by the
Regional Trial Court, it carried passengers or goods only for those it chose under a special contract of charter
party. [13] As correctly concluded by the Court of Appeals, the MV Vlasons I was not a common but a private
carrier. [14] Consequently, the rights and obligations of VSI and NSC, including their respective liability for damage
to the cargo, are determined primarily by stipulations in their contract of private carriage or charter
party. [15] Recently, in Valenzuela Hardwood and Industrial Supply, Inc., vs.  Court of Appeals and Seven Brothers
Shipping Corporation, [16] the Court ruled:

x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations which perforce
would be binding on them. Unlike in a contract involving a common carrier, private carriage does not involve the
general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general public
cannot justifiably be applied to a ship transporting commercial goods as a private carrier. Consequently, the public
policy embodied therein is not contravened by stipulations in a charter party that lessen or remove the protection
given by law in contracts involving common carriers.[17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall not be responsible
for losses except on proven willful negligence of the officers of the vessel. The NANYOZAI Charter Party, which
was incorporated in the parties contract of transportation, further provided that the shipowner shall not be liable for
loss of or damage to the cargo arising or resulting from unseaworthiness, unless the same was caused by its lack
of due diligence to make the vessel seaworthy or to ensure that the same was properly manned, equipped and
supplied, and to make the holds and all other parts of the vessel in which cargo [was] carried, fit and safe for its
reception, carriage and preservation. [18] The NANYOZAI Charter Party also provided that [o]wners shall not be
responsible for split, chafing and/or any damage unless caused by the negligence or default of the master or
crew.[19]

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment was
caused by VSIs willful negligence or failure to exercise due diligence in making MV Vlasons I seaworthy and fit for
holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by the parties
agreement.

This view finds further support in the Code of Commerce which pertinently provides:

Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been
expressly stipulated.

Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous event,
force majeure, or the nature and inherent defect of the things, shall be for the account and risk of the shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the preceding
article if proofs against him show that they occurred on account of his negligence or his omission to take the
precautions usually adopted by careful persons, unless the shipper committed fraud in the bill of lading, making
him to believe that the goods were of a class or quality different from what they really were.

Because the MV Vlasons I was a private carrier, the shipowners obligations are governed by the foregoing
provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places the prima
facie presumption of negligence on a common carrier. It is a hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove that the
carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged while in the carriers
custody does not put the burden of proof on the carrier.
Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the protection of the
goods committed to its care, the burden of proving negligence or a breach of that duty rests on plaintiff and proof
of loss of, or damage to, cargo while in the carriers possession does not cast on it the burden of proving proper
care and diligence on its part or that the loss occurred from an excepted cause in the contract or bill of
lading. However, in discharging the burden of proof, plaintiff is entitled to the benefit of the presumptions and
inferences by which the law aids the bailor in an action against a bailee, and since the carrier is in a better
position to know the cause of the loss and that it was not one involving its liability, the law requires that it come
forward with the information available to it, and its failure to do so warrants an inference or presumption of its
liability. However, such inferences and presumptions, while they may affect the burden of coming forward with
evidence, do not alter the burden of proof which remains on plaintiff, and, where the carrier comes forward with
evidence explaining the loss or damage, the burden of going forward with the evidence is again on plaintiff.

Where the action is based on the shipowners warranty of seaworthiness, the burden of proving a breach thereof
and that such breach was the proximate cause of the damage rests on plaintiff, and proof that the goods were lost
or damaged while in the carriers possession does not cast on it the burden of proving seaworthiness. x x x Where
the contract of carriage exempts the carrier from liability for unseaworthiness not discoverable by due diligence,
the carrier has the preliminary burden of proving the exercise of due diligence to make the vessel seaworthy. [20]

In the instant case, the Court of Appeals correctly found that NSC has not taken the correct position in relation to
the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and Clause 12 of
the NANYOZAI Charter Party (incidentally plaintiff-appellants [NSCs] interpretation of Clause 12 is not even
correct), it argues that a careful examination of the evidence will show that VSI miserably failed to comply with any
of these obligations as if defendant-appellee [VSI] had the burden of proof.[21]

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual questions is manifestly relevant: (1) whether
VSI exercised due diligence in making MV Vlasons I  seaworthy for the intended purpose under the charter party;
(2) whether the damage to the cargo should be attributed to the willful negligence of the officers and crew of the
vessel or of the stevedores hired by NSC; and (3) whether the rusting of the tinplates was caused by its own
sweat or by contact with seawater.

These questions of fact were threshed out and decided by the trial court, which had the firsthand opportunity to
hear the parties conflicting claims and to carefully weigh their respective evidence. The findings of the trial court
were subsequently affirmed by the Court of Appeals. Where the factual findings of both the trial court and the
Court of Appeals coincide, the same are binding on this Court. [22] We stress that, subject to some exceptional
instances, [23] only questions of law -- not questions of fact -- may be raised before this Court in a petition for
review under Rule 45 of the Rules of Court. After a thorough review of the case at bar, we find no reason to
disturb the lower courts factual findings, as indeed NSC has not successfully proven the application of any of the
aforecited exceptions.

Was  MV Vlasons I  Seaworthy?

In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit for the
carriage of NSCs cargo of steel and tinplates. This is shown by the fact that it was drydocked and inspected by
the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila under the contract of voyage
charter hire. [24] The vessels voyage from Iligan to Manila was the vessels first voyage after drydocking. The
Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted andequipped; it met all requirements for
trading as cargo vessel. [25] The Court of Appeals itself sustained the conclusion of the trial court that MV Vlasons
I was seaworthy. We find no reason to modify or reverse this finding of both the trial and the appellate courts.

Who Were Negligent: Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the negligence
of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the carriage of
tinplates. NSC failed to discharge this burden.

Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or canvas to cover
the hatches through which the cargo was loaded into the cargo hold of the ship. It faults the Court of Appeals for
failing to consider such claim as an uncontroverted fact [26] and denies that MV Vlasons I was equipped with new
canvas covers in tandem with the old ones as indicated in the Marine Protest xxx. [27] We disagree.

The records sufficiently support VSIs contention that the ship used the old tarpaulin, only in addition to the new
one used primarily to make the ships hatches watertight. The foregoing are clear from the marine protest of the
master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ships boatswain, Jose Pascua. The
salient portions of said marine protest read:

x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8, 1974, loaded with
approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation; that before
departure, the vessel was rigged, fully equipped and cleared by the authorities; that on or about August 9, 1974,
while in the vicinity of the western part of Negros and Panay, we encountered very rough seas and strong winds
and Manila office was advised by telegram of the adverse weather conditions encountered; that in the morning of
August 10, 1974, the weather condition changed to worse and strong winds and big waves continued pounding
the vessel at her port side causing sea water to overflow on deck andhatch (sic) covers and which caused the first
layer of the canvass covering to give way while the new canvass covering still holding on;

That the weather condition improved when we reached Dumali Point protected by Mindoro; that we re-secured the
canvass covering back to position; that in the afternoon of August 10, 1974, while entering Maricaban Passage,
we were again exposed to moderate seas and heavy rains; that while approaching Fortune Island, we
encountered again rough seas, strong winds and big waves which caused the same canvass to give way and
leaving the new canvass holding on;

xxx xxx xxx [28]

And the relevant portions of Jose Pascuas deposition are as follows:

Q: What is the purpose of the canvas cover?

A: So that the cargo would not be soaked with water.

A: And will you describe how the canvas cover was secured on the hatch opening?

WITNESS

A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and we place[d] a flat bar
over the canvas on the side of the hatches and then we place[d] a stopper so that the canvas could not be
removed.

ATTY DEL ROSARIO

Q: And will you tell us the size of the hatch opening? The length and the width of the hatch opening.

A: Forty-five feet by thirty-five feet, sir.

x x x x x x x x x

Q: How was the canvas supported in the middle of the hatch opening?

A: There is a hatch board.

ATTY DEL ROSARIO

Q: What is the hatch board made of?

A: It is made of wood, with a handle.

Q: And aside from the hatch board, is there any other material there to cover the hatch?

A: There is a beam supporting the hatch board.

Q: What is this beam made of?

A: It is made of steel, sir.

Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?

A: No, sir.

Q: How many hatch beams were there placed across the opening?

A: There are five beams in one hatch opening.

ATTY DEL ROSARIO

Q: And on top of the beams you said there is a hatch board. How many pieces of wood are put on top?

A: Plenty, sir, because there are several pieces on top of the hatch beam.

Q: And is there a space between the hatch boards?

A: There is none, sir.

Q: They are tight together?

A: Yes, sir.

Q: How tight?

A: Very tight, sir.

Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many canvas covers?

A: Two, sir. [29]

That due diligence was exercised by the officers and the crew of the MV Vlasons I was further demonstrated by
the fact that, despite encountering rough weather twice, the new tarpaulin did not give way and the ships hatches
and cargo holds remained waterproof. As aptly stated by the Court of Appeals, xxx we find no reason not to
sustain the conclusion of the lower court based on overwhelming evidence, that the MV VLASONS I was
seaworthy when it undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-appellants shipment
of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages from NSCs pier in
Iligan City arriving safely at North Harbor, Port Area, Manila, on August 12, 1974; xxx. [30]
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the crew of MV
Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were negligent in unloading
the cargo from the ship.

The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned by a
passing typhoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly inadequate for
keeping rain and seawater away from the hatches of the ship. Vicente Angliongto, an officer of VSI, testified thus:

ATTY ZAMORA:

Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went on board the vessel
upon notice from the National Steel Corporation in order to conduct the inspection of the cargo.During the course
of the investigation, did you chance to see the discharging operation?

WITNESS:

A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the pier but majority
of the tinplates were inside the hall, all the hatches were opened.

Q: In connection with these cargoes which were unloaded, where is the place.

A: At the Pier.

Q: What was used to protect the same from weather?

ATTY LOPEZ:

We object, your Honor, this question was already asked. This particular matter . . . the transcript of stenographic
notes shows the same was covered in the direct examination.

ATTY ZAMORA:

Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.

COURT:

All right, witness may answer.

ATTY LOPEZ:

Q: What was used in order to protect the cargo from the weather?

A: A base of canvas was used as cover on top of the tin plates, and tents were built at the opening of the hatches.

Q: You also stated that the hatches were already opened and that there were tents constructed at the opening of
the hatches to protect the cargo from the rain. Now, will you describe [to] the Court the tents constructed.

A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at the middle with the
whole side separated down to the hatch, the size of the hatch and it is soaks [sic] at the middle because of those
weather and this can be used only to temporarily protect the cargo from getting wet by rains.

Q: Now, is this procedure adopted by the stevedores of covering tents proper?

A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the hatch tent was not
good enough to hold all of it to prevent the water soaking through the canvas and enter the cargo.

Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and soak into the
canvas and tinplates.

A: Yes, sir, the second time I went there, I saw it.

Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure adopted by its
stevedores in discharging the cargo particularly in this tent covering of the hatches?

A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores did not mind at
all, so, I called the attention of the representative of the National Steel but nothing was done, just the
same. Finally, I wrote a letter to them. [31]

NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain immediately about the
stevedores negligence on the first day of unloading, pointing out that he wrote his letter to petitioner only seven
days later. [32] The Court is not persuaded. Angliongtos candid answer in his aforequoted testimony satisfactorily
explained the delay. Seven days lapsed because he first called the attention of the stevedores, then the NSCs
representative, about the negligent and defective procedure adopted in unloading the cargo. This series of actions
constitutes a reasonable response in accord with common sense and ordinary human experience. Vicente
Angliongto could not be blamed for calling the stevedores attention first and then the NSCs representative on
location before formally informing NSC of the negligence he had observed, because he was not responsible for
the stevedores or the unloading operations. In fact, he was merely expressing concern for NSC which was
ultimately responsible for the stevedores it had hired and the performance of their task to unload the cargo.

We see no reason to reverse the trial and the appellate courts findings and conclusions on this point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired by NSC
were negligent in the unloading of NSCs shipment. We do not think so. Such negligence according to the trial
court is evident in the stevedores hired by [NSC], not closing the hatch of MV VLASONS I when rains occurred
during the discharging of the cargo thus allowing rain water and seawater spray to enter the hatches and to drift to
and fall on the cargo. It was proven that the stevedores merely set up temporary tents or canvas to cover the
hatch openings when it rained during the unloading operations so that it would be easier for them to resume work
after the rains stopped by just removing said tents or canvass. It has also been shown that on August 20, 1974,
VSI President Vicente Angliongto wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were
discharging the cargo on rainy days and the improper closing of the hatches which allowed continuous heavy rain
water to leak through and drip to the tinplates covers and [Vicente Angliongto] also suggesting that due to four (4)
days continuos rains with strong winds that the hatches be totally closed down and covered with canvas and the
hatch tents lowered. (Exh 13). This letter was received by [NSC] on 22 August 1974 while discharging operations
were still going on (Exhibit 13-A). [33]

The fact that NSC actually accepted and proceeded to remove the cargo from the ship during unfavorable
weather will not make VSI liable for any damage caused thereby. In passing, it may be noted that the NSC may
seek indemnification, subject to the laws on prescription, from the stevedoring company at fault in the discharge
operations. A stevedore company engaged in discharging cargo xxx has the duty to load the cargo xxx in a
prudent manner, and it is liable for injury to, or loss of, cargo caused by its negligence xxx and where the officers
and members and crew of the vessel do nothing and have no responsibility in the discharge of cargo by
stevedores xxx the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of
the stevedores xxx [34] as in the instant case.

Do Tinplates Sweat?

The trial court relied on the testimony of Vicente Angliongto in finding that xxx tinplates sweat by themselves when
packed even without being in contact with water from outside especially when the weather is bad or raining
xxx. [35] The Court of Appeals affirmed the trial courts finding.

A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the damage to the
tinplates was occasioned not by airborne moisture but by contact with rain and seawater which the stevedores
negligently allowed to seep in during the unloading.

Second Issue:  Effect of NSCs Failure to Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally separate and
distinct from the contractual or statutory responsibility that may be incurred by VSI for damage to the cargo
caused by the willful negligence of the officers and the crew of MV Vlasons I.Clearly, therefore, NSCs failure to
insure the cargo will not affect its right, as owner and real party in interest, to file an action against VSI for
damages caused by the latters willful negligence. We do not find anything in the charter party that would make the
liability of VSI for damage to the cargo contingent on or affected in any manner by NSCs obtaining an insurance
over the cargo.

Third Issue: Admissibility of Certificates Proving Seaworthiness

NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of the
certificates of seaworthiness offered in evidence by VSI. The said certificates include the following:

1. Certificate of Inspection of the Philippine Coast Guard at Cebu

2. Certificate of Inspection from the Philippine Coast Guard

3. International Load Line Certificate from the Philippine Coast Guard

4. Coastwise License from the Board of Transportation

5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]

NSC argues that the certificates are hearsay for not having been presented in accordance with the Rules of
Court. It points out that Exhibits 3, 4 and 11 allegedly are not written records or acts of public officers;
while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official publications or certified true copies as required
by Sections 25 and 26, Rule 132, of the Rules of Court. [37]

After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are
inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates issued by
private parties, but they have not been proven by one who saw the writing executed, or by evidence of the
genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are
photocopies, but their admission under the best evidence rule have not been demonstrated.

We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per Section 44
of Rule 130 of the Rules of Court, which provides that (e)ntries in official records made in the performance of a
duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law,
are prima facie  evidence of the facts therein stated. [38] Exhibit 11 is an original certificate of the Philippine Coast
Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the effect that the vessel VLASONS I was
drydocked x x x and PCG Inspectors were sent on board for inspection x x x. After completion of drydocking and
duly inspected by PCG Inspectors, the vessel VLASONS I, a cargo vessel, is in seaworthy condition, meets all
requirements, fitted and equipped for trading as a cargo vessel was cleared by the Philippine Coast Guard and
sailed for Cebu Port on July 10, 1974. (sic) NSCs claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons I was not
seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the obligation of a
common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its duty of proving the
willful negligence of VSI in making the ship seaworthy resulting in damage to its cargo.Assailing the genuineness
of the certificate of seaworthiness is not sufficient proof that the vessel was not seaworthy.

Fourth Issue: Demurrage and Attorneys Fees

The contract of voyage charter hire provides inter alia:

xxx xxx xxx

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.

xxx xxx xxx

6. Loading/Discharging Rate : 750 tons per WWDSHINC.

7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]

The Court defined demurrage in its strict sense as the compensation provided for in the contract of affreightment
for the detention of the vessel beyond the laytime or that period of time agreed on for loading and unloading of
cargo. [40] It is given to compensate the shipowner for the nonuse of the vessel.On the other hand, the following is
well-settled:

Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed in running days,
this means days when the ship would be run continuously, and holidays are not excepted. A qualification of
weather permitting excepts only those days when bad weather reasonably prevents the work contemplated. [41]

In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified laytime as
WWDSHINC or weather working days Sundays and holidays included. [42] The running of laytime was thus made
subject to the weather, and would cease to run in the event unfavorable weather interfered with the unloading of
cargo. [43] Consequently, NSC may not be held liable for demurrage as the four-day laytime allowed it did not
lapse, having been tolled by unfavorable weather condition in view of the WWDSHINC qualification agreed upon
by the parties. Clearly, it was error for the trial court and the Court of Appeals to have found and affirmed
respectively that NSC incurred eleven days of delay in unloading the cargo. The trial court arrived at this
erroneous finding by subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only
day of unloading unhampered by unfavorable weather or rain which was August 22, 1974. Based on our previous
discussion, such finding is a reversible error. As mentioned, the respondent appellate court also erred in ruling
that NSC was liable to VSI for demurrage, even if it reduced the amount by half.

Attorneys Fees

VSI assigns as error of law the Court of Appeals deletion of the award of attorneys fees. We disagree.While VSI
was compelled to litigate to protect its rights, such fact by itself will not justify an award of attorneys fees under
Article 2208 of the Civil Code when x x x no sufficient showing of bad faith would be reflected in a partys
persistence in a case other than an erroneous conviction of the righteousness of his cause x x x. [44] Moreover,
attorneys fees may not be awarded to a party for the reason alone that the judgment rendered was favorable to
the latter, as this is tantamount to imposing a premium on ones right to litigate or seek judicial redress of
legitimate grievances. [45]

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the
cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such damage was
brought about during the unloading process when rain and seawater seeped through the cargo due to the fault or
negligence of the stevedores employed by it. Basic is the rule that factual findings of the trial court, when affirmed
by the Court of Appeals, are binding on the Supreme Court. Although there are settled exceptions, NSC has not
satisfactorily shown that this case is one of them. Second, the agreement between the parties -- the Contract of
Voyage Charter Hire -- placed the burden of proof for such loss or damage upon the shipper, not upon the
shipowner. Such stipulation, while disadvantageous to NSC, is valid because the parties entered into a contract of
private charter, not one of common carriage. Basic too is the doctrine that courts cannot relieve a party from the
effects of a private contract freely entered into, on the ground that it is allegedly one-sided or unfair to the
plaintiff. The charter party is a normal commercial contract and its stipulations are agreed upon in consideration of
many factors, not the least of which is the transport price which is determined not only by the actual costs but also
by the risks and burdens assumed by the shipper in regard to possible loss or damage to the cargo. In recognition
of such factors, the parties even stipulated that the shipper should insure the cargo to protect itself from the risks it
undertook under the charter party. That NSC failed or neglected to protect itself with such insurance should not
adversely affect VSI, which had nothing to do with such failure or neglect.

WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The questioned
Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is
deleted. No pronouncement as to costs.

SO ORDERED.

10. G.R. No. 115381 December 23, 1994

KILUSANG MAYO UNO LABOR CENTER, petitioner, 
vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD,
and the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents.

KAPUNAN, J.:

Public utilities are privately owned and operated businesses whose service are essential to the general public.
They are enterprises which specially cater to the needs of the public and conduce to their comfort and
convenience. As such, public utility services are impressed with public interest and concern. The same is true with
respect to the business of common carrier which holds such a peculiar relation to the public interest that there is
superinduced upon it the right of public regulation when private properties are affected with public interest, hence,
they cease to be  juris privati  only. When, therefore, one devotes his property to a use in which the public has an
interest, he, in effect grants to the public an interest in that use, and must submit to the control by the public for
the common good, to the extent of the interest he has thus created.1

An abdication of the licensing and regulatory government agencies of their functions as the instant petition seeks
to show, is indeed lamentable. Not only is it an unsound administrative policy but it is inimical to public trust and
public interest as well.

The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars and/or
orders of the Department of Transportation and Communications (DOTC) and the Land Transportation
Franchising and Regulatory Board LTFRB)2 which, among others, (a) authorize provincial bus and jeepney
operators to increase or decrease the prescribed transportation fares without application therefor with the LTFRB
and without hearing and approval thereof by said agency in violation of Sec. 16(c) of Commonwealth Act No. 146,
as amended, otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix and determine
just and reasonable fares by delegating that function to bus operators, and (b) establish a presumption of public
need in favor of applicants for certificates of public convenience (CPC) and place on the oppositor the burden of
proving that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as
amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and reasonable." It is,
likewise, violative of the Rules of Court which places upon each party the burden to prove his own affirmative
allegations.3 The offending provisions contained in the questioned issuances pointed out by petitioner, have
resulted in the introduction into our highways and thoroughfares thousands of old and smoke-belching buses,
many of which are right-hand driven, and have exposed our consumers to the burden of spiraling costs of public
transportation without hearing and due process.

The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz: (a) DOTC
Memorandum Order 90-395, dated June 26, 1990 relative to the implementation of a fare range scheme for
provincial bus services in the country; (b) DOTC Department Order No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC
Memorandum dated October 8, 1992, laying down rules and procedures to implement Department Order No. 92-
587; (d) LTFRB Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC Department
Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 94-3112.

The relevant antecedents are as follows:

On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then
LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers rates within a
range of 15% above and 15% below the LTFRB official rate for a period of one (1) year. The text of the
memorandum order reads in full:

One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the Medium-
Term Philippine Development Plan (MTPDP) 1987 — 1992) is the liberalization of regulations in the transport
sector. Along this line, the Government intends to move away gradually from regulatory policies and make
progress towards greater reliance on free market forces.

Based on several surveys and observations, bus companies are already charging passenger rates above and
below the official fare declared by LTFRB on many provincial routes. It is in this context that some form of
liberalization on public transport fares is to be tested on a pilot basis.

In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all provincial bus
routes in country (except those operating within Metro Manila). Transport Operators shall be allowed to charge
passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate
for a period of one year.

Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the DOTC
Planning Service.

The implementation of the said fare range scheme shall start on 6 August 1990.

For compliance. (Emphasis ours.)

Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted
the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:

With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received on 19
July 1990, directing the Board "to immediately publicize a fare range scheme for all provincial bus routes in the
country (except those operating within Metro Manila)" that will allow operators "to charge passengers within a
range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one
year" the undersigned is respectfully adverting the Secretary's attention to the following for his consideration:

1. Section 16(c) of the Public Service Act prescribes the following for the fixing and determination of rates — (a)
the rates to be approved should be proposed by public service operators; (b) there should be a publication and
notice to concerned or affected parties in the territory affected; (c) a public hearing should be held for the fixing of
the rates; hence, implementation of the proposed fare range scheme on August 6 without complying with the
requirements of the Public Service Act may not be legally feasible.

2. To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares in the wake
of the devastation, death and suffering caused by the July 16 earthquake will not be socially warranted and will be
politically unsound; most likely public criticism against the DOTC and the LTFRB will be triggered by the
untimely motu propioimplementation of the proposal by the mere expedient of publicizing the fare range scheme
without calling a public hearing, which scheme many as early as during the Secretary's predecessor know through
newspaper reports and columnists' comments to be Asian Development Bank and World Bank inspired.

3. More than inducing a reduction in bus fares by fifteen percent (15%) the implementation of the proposal will
instead trigger an upward adjustment in bus fares by fifteen percent (15%) at a time when hundreds of thousands
of people in Central and Northern Luzon, particularly in Central Pangasinan, La Union, Baguio City, Nueva Ecija,
and the Cagayan Valley are suffering from the devastation and havoc caused by the recent earthquake.

4. In lieu of the said proposal, the DOTC with its agencies involved in public transportation can consider measures
and reforms in the industry that will be socially uplifting, especially for the people in the areas devastated by the
recent earthquake.

In view of the foregoing considerations, the undersigned respectfully suggests that the implementation of the
proposed fare range scheme this year be further studied and evaluated.

On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. (PBOAP)
filed an application for fare rate increase. An across-the-board increase of eight and a half centavos (P0.085) per
kilometer for all types of provincial buses with a minimum-maximum fare range of fifteen (15%) percent over and
below the proposed basic per kilometer fare rate, with the said minimum-maximum fare range applying only to
ordinary, first class and premium class buses and a fifty-centavo (P0.50) minimum per kilometer fare for aircon
buses, was sought.

On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board
increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was due to the drop
in the expected price of diesel.

The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that
the proposed rates were exorbitant and unreasonable and that the application contained no allegation on the rate
of return of the proposed increase in rates.

On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in
accordance with the following schedule of fares on a straight computation method, viz:

AUTHORIZED FARES

LUZON
MIN. OF 5 KMS. SUCCEEDING KM.

REGULAR P1.50 P0.37

STUDENT P1.15 P0.28

VISAYAS/MINDANAO

REGULAR P1.60 P0.375

STUDENT P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/
MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/
MINDANAO P0.405

AIRCON (PER KM.) P0.415.4

On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes
Prado issued Department Order No.
92-587 defining the policy framework on the regulation of transport services. The full text of the said order is
reproduced below in view of the importance of the provisions contained therein:

WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation and
Communications (DOTC) as the primary policy, planning, regulating and implementing agency on transportation;
WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the
transportation regulatory agencies under or attached to the DOTC have to harmonize their decisions and adopt a
common philosophy and direction;

WHEREAS, the government proposes to build on the successful liberalization measures pursued over the last five
years and bring the transport sector nearer to a balanced longer term regulatory framework;

NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and principles in
the economic regulation of land, air, and water transportation services are hereby adopted:

1. Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no franchise
holder shall be permitted to maintain a monopoly on any route. A minimum of two franchise holders shall be
permitted to operate on any route.

The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof of Filipino
citizenship, financial capability, public need, and sufficient insurance cover to protect the riding public.

In determining public need, the presumption of need for a service shall be deemed in favor of the applicant. The
burden of proving that there is no need for a proposed service shall be with the oppositor(s).

In the interest of providing efficient public transport services, the use of the "prior operator" and the "priority of
filing" rules shall be discontinued. The route measured capacity test or other similar tests of demand for
vehicle/vessel fleet on any route shall be used only as a guide in weighing the merits of each franchise application
and not as a limit to the services offered.

Where there are limitations in facilities, such as congested road space in urban areas, or at airports and ports, the
use of demand management measures in conformity with market principles may be considered.

The right of an operator to leave the industry is recognized as a business decision, subject only to the filing of
appropriate notice and following a phase-out period, to inform the public and to minimize disruption of services.

2. Rate and Fare Setting. Freight rates shall be freed gradually from government controls. Passenger fares shall
also be deregulated, except for the lowest class of passenger service (normally third class passenger transport)
for which the government will fix indicative or reference fares. Operators of particular services may fix their own
fares within a range 15% above and below the indicative or reference rate.

Where there is lack of effective competition for services, or on specific routes, or for the transport of particular
commodities, maximum mandatory freight rates or passenger fares shall be set temporarily by the government
pending actions to increase the level of competition.

For unserved or single operator routes, the government shall contract such services in the most advantageous
terms to the public and the government, following public bids for the services. The advisability of bidding out the
services or using other kinds of incentives on such routes shall be studied by the government.

3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall not engage
in special financing and incentive programs, including direct subsidies for fleet acquisition and expansion. Only
when the market situation warrants government intervention shall programs of this type be considered. Existing
programs shall be phased out gradually.

The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime Industry
Authority are hereby directed to submit to the Office of the Secretary, within forty-five (45) days of this Order, the
detailed rules and procedures for the Implementation of the policies herein set forth. In the formulation of such
rules, the concerned agencies shall be guided by the most recent studies on the subjects, such as the Provincial
Road Passenger Transport Study, the Civil Aviation Master Plan, the Presidential Task Force on the Inter-island
Shipping Industry, and the Inter-island Liner Shipping Rate Rationalization Study.

For the compliance of all concerned. (Emphasis ours)

On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications
Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the
adoption of rules and procedures to implement above-quoted Department Order No. 92-587 that laid down
deregulation and other liberalization policies for the transport sector. Attached to the said memorandum was a
revised draft of the required rules and procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate
and Fare Setting, with comments and suggestions from the World Bank incorporated therein. Likewise,
resplendent from the said memorandum is the statement of the DOTC Secretary that the adoption of the rules and
procedures is a pre-requisite to the approval of the Economic Integration Loan from the World Bank.5

On February 17, 1993, the LTFRB issued Memorandum Circular

No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-587. The
Circular provides, among others, the following challenged portions:

xxx xxx xxx

IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.

The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public
need for a service shall be deemed in favor of the applicant, while burden of proving that there is no need for the
proposed service shall be the oppositor'(s).

xxx xxx xxx

V. Rate and Fare Setting

The control in pricing shall be liberalized to introduce price competition complementary with the quality of service,
subject to prior notice and public hearing. Fares shall not be provisionally authorized without public hearing.

A. On the General Structure of Rates

1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses and jeepneys shall
be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an indicative or reference
rate as the basis for the expanded fare range.

2. Fare systems for aircon buses are liberalized to cover first class and premier services.

xxx xxx xxx

(Emphasis ours).

Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC
allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first having
filed a petition for the purpose and without the benefit of a public hearing, announced a fare increase of twenty
(20%) percent of the existing fares. Said increased fares were to be made effective on March 16, 1994.

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus
fares.

On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The
dispositive portion reads:

PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES FOR
LACK OF MERIT the petition filed in the above-entitled case. This petition in this case was resolved with dispatch
at the request of petitioner to enable it to immediately avail of the legal remedies or options it is entitled under
existing laws.

SO ORDERED.6

Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order.

The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing
respondents from implementing the bus fare rate increase as well as the questioned orders and memorandum
circulars. This meant that provincial bus fares were rolled back to the levels duly authorized by the LTFRB prior to
March 16, 1994. A moratorium was likewise enforced on the issuance of franchises for the operation of buses,
jeepneys, and taxicabs.

Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to provincial
bus operators to set a fare range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and
minus twenty-five (-25%) percent, over and above the existing authorized fare without having to file a petition for
the purpose, is unconstitutional, invalid and illegal. Second, the establishment of a presumption of public need in
favor of an applicant for a proposed transport service without having to prove public necessity, is illegal for being
violative of the Public Service Act and the Rules of Court.

In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the petitioner,
questions the wisdom and the manner by which the instant petition was filed. It asserts that the petitioner has no
legal standing to sue or has no real interest in the case at bench and in obtaining the reliefs prayed for.

In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B. Garcia,
Jr. and the LTFRB asseverate that the petitioner does not have the standing to maintain the instant suit. They
further claim that it is within DOTC and LTFRB's authority to set a fare range scheme and establish a presumption
of public need in applications for certificates of public convenience.

We find the instant petition impressed with merit.

At the outset, the threshold issue of locus standi  must be struck. Petitioner KMU has the standing to sue.

The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the
Constitution provides:

xxx xxx xxx

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.

In Lamb v. Phipps,7 we ruled that judicial power is the power to hear and decide causes pending between parties
who have the right to sue in the courts of law and equity. Corollary to this provision is the principle of locus
standi of a party litigant. One who is directly affected by and whose interest is immediate and substantial in the
controversy has the standing to sue. The rule therefore requires that a party must show a personal stake in the
outcome of the case or an injury to himself that can be redressed by a favorable decision so as to warrant an
invocation of the court's jurisdiction and to justify the exercise of the court's remedial powers in his behalf.8
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury
and damage from the implementation of the questioned memoranda, circulars and/or orders, has shown that it
has a clear legal right that was violated and continues to be violated with the enforcement of the challenged
memoranda, circulars and/or orders. KMU members, who avail of the use of buses, trains and jeepneys everyday,
are directly affected by the burdensome cost of arbitrary increase in passenger fares. They are part of the millions
of commuters who comprise the riding public. Certainly, their rights must be protected, not neglected nor ignored.

Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this
barren procedural infirmity and recognize the legal standing of the petitioner in view of the transcendental
importance of the issues raised. And this act of liberality is not without judicial precedent. As early as
the  Emergency Powers Cases, this Court had exercised its discretion and waived the requirement of proper party.
In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al.,9 we ruled in the same lines and
enumerated some of the cases where the same policy was adopted, viz:

. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its discretion,
set aside in view of the importance of the issues raised. In the landmark Emergency Powers Cases, [G.R. No. L-
2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of
Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed
aside this technicality because "the transcendental importance to the public of these cases demands that they be
settled promptly and definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R.
No. L-2621)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is not devoid of discretion
as to whether or not it should be entertained," (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an
open discretion to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].

xxx xxx xxx

In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even
association of planters, and
non-profit civic organizations were allowed to initiate and prosecute actions before this court to question the
constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it
allows retirement gratuity and commutation of vacation and sick leave to Senators and Representatives and to
elective officials of both Houses of Congress (Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479
[1965]); (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed
members of the cabinet, their undersecretaries, and assistant secretaries to hold other government offices or
positions (Civil Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for
debt service in the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056
on the holding of desynchronized elections (Osmeña v. Commission on Elections, 199 SCRA 750 [1991]); (e)
P.D. No. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on the ground that it is contrary
to morals, public policy, and order (Basco v. Philippine Amusement and Gaming Corp., 197 SCRA 52 [1991]); and
(f) R.A. No. 6975, establishing the Philippine National Police. (Carpio v. Executive Secretary, 206 SCRA 290
[1992]).

Other cases where we have followed a liberal policy regarding  locus standi  include those attacking the validity or
legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452
(Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and 1033
insofar as they proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed the COMELEC
to supervise, control, hold, and conduct the referendum-plebiscite on 16 October 1976 (Sanidad v. Commission
on Elections, supra); (c) the bidding for the sale of the 3,179 square meters of land at Roppongi, Minato-ku,
Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval without hearing by the Board of
Investments of the amended application of the Bataan Petrochemical Corporation to transfer the site of its plant
from Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha only to naphtha
and/or liquefied petroleum gas (Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v. Board of
Investments, 191 SCRA 288 [1990]); (e) the decisions, orders, rulings, and resolutions of the Executive Secretary,
Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives
Review Board exempting the National Power Corporation from indirect tax and duties (Maceda v. Macaraig, 197
SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that
the hearings conducted on the second provisional increase in oil prices did not allow the petitioner substantial
cross-examination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g) Executive Order No. 478
which levied a special duty of P0.95 per liter of imported oil products (Garcia v. Executive Secretary, 211 SCRA
219 [1992]); (h) resolutions of the Commission on Elections concerning the apportionment, by district, of the
number of elective members of Sanggunians (De Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and
(i) memorandum orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and Conscience
Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).

In the 1975 case of Aquino v. Commission on Elections  (62 SCRA 275 [1975]), this Court, despite its unequivocal
ruling that the petitioners therein had no personality to file the petition, resolved nevertheless to pass upon the
issues raised because of the far-reaching implications of the petition. We did no less in De Guia v. COMELEC
(Supra) where, although we declared that De Guia "does not appear to have  locus standi, a standing in law, a
personal or substantial interest," we brushed aside the procedural infirmity "considering the importance of the
issue involved, concerning as it does the political exercise of qualified voters affected by the apportionment, and
petitioner alleging abuse of discretion and violation of the Constitution by respondent."

Now on the merits of the case.

On the fare range scheme.

Section 16(c) of the Public Service Act, as amended, reads:

Sec. 16. Proceedings of the Commission, upon notice and hearing. — The Commission shall have power, upon
proper notice and hearing  in accordance with the rules and provisions of this Act, subject to the limitations and
exceptions mentioned and saving provisions to the contrary:

xxx xxx xxx

(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as well as
commutation, mileage kilometrage, and other special rates which shall be imposed, observed, and followed
thereafter by any public service: Provided, That the Commission may, in its discretion, approve rates proposed by
public services provisionally and without necessity of any hearing; but it shall call a hearing thereon within thirty
days thereafter, upon publication and notice to the concerns operating in the territory affected: Provided, further,
That in case the public service equipment of an operator is used principally or secondarily for the promotion of a
private business, the net profits of said private business shall be considered in relation with the public service of
such operator for the purpose of fixing the rates. (Emphasis ours).

xxx xxx xxx

Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the power of
fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with
the same under Executive Order No. 202 dated June 19, 1987. Section 5(c) of the said executive order authorizes
LTFRB "to determine, prescribe, approve and periodically review and adjust, reasonable fares, rates and other
related charges, relative to the operation of public land transportation services provided by motorized vehicles."

Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing
complexity of modern life. As subjects for governmental regulation multiply, so does the difficulty of administering
the laws. Hence, specialization even in legislation has become necessary. Given the task of determining sensitive
and delicate matters as
route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the power
of subordinate legislation. With this authority, an administrative body and in this case, the LTFRB, may implement
broad policies laid down in a statute by "filling in" the details which the Legislature may neither have time or
competence to provide. However, nowhere under the aforesaid provisions of law are the regulatory bodies, the
PSC and LTFRB alike, authorized to delegate that power to a common carrier, a transport operator, or other
public service.

In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and
above the authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative
authority.  Potestas delegata non delegari potest. What has been delegated cannot be delegated. This doctrine is
based on the ethical principle that such a delegated power constitutes not only a right but a duty to be performed
by the delegate through the instrumentality of his own judgment and not through the intervening mind of
another.10 A further delegation of such power would indeed constitute a negation of the duty in violation of the
trust reposed in the delegate mandated to discharge it directly.11 The policy of allowing the provincial bus
operators to change and increase their fares at will would result not only to a chaotic situation but to an anarchic
state of affairs. This would leave the riding public at the mercy of transport operators who may increase fares
every hour, every day, every month or every year, whenever it pleases them or whenever they deem it
"necessary" to do so. In  Panay Autobus Co. v. Philippine Railway Co.,12 where respondent Philippine Railway Co.
was granted by the Public Service Commission the authority to change its freight rates at will, this Court
categorically declared that:

In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine Railway
Co. the power of altering its freight rates whenever it should find it necessary to do so in order to meet the
competition of road trucks and autobuses, or to change its freight rates at will, or to regard its present rates as
maximum rates, and to fix lower rates whenever in the opinion of the Philippine Railway Co. it would be to its
advantage to do so.

The mere recital of the language of the application of the Philippine Railway Co. is enough to show that it is
untenable. The Legislature has delegated to the Public Service Commission the power of fixing the rates of public
services, but it has not authorized the Public Service Commission to delegate that power to a common carrier or
other public service. The rates of public services like the Philippine Railway Co. have been approved or fixed by
the Public Service Commission, and any change in such rates must be authorized or approved by the Public
Service Commission after they have been shown to be just and reasonable. The public service may, of course,
propose new rates, as the Philippine Railway Co. did in case No. 31827, but it cannot lawfully make said new
rates effective without the approval of the Public Service Commission, and the Public Service Commission itself
cannot authorize a public service to enforce new rates without the prior approval of said rates by the commission.
The commission must approve new rates when they are submitted to it, if the evidence shows them to be just and
reasonable, otherwise it must disapprove them. Clearly, the commission cannot determine in advance whether or
not the new rates of the Philippine Railway Co. will be just and reasonable, because it does not know what those
rates will be.

In the present case the Philippine Railway Co. in effect asked for permission to change its freight rates at will. It
may change them every day or every hour, whenever it deems it necessary to do so in order to meet competition
or whenever in its opinion it would be to its advantage. Such a procedure would create a most unsatisfactory state
of affairs and largely defeat the purposes of the public service law.13(Emphasis ours).

One veritable consequence of the deregulation of transport fares is a compounded fare. If transport operators will
be authorized to impose and collect an additional amount equivalent to 20% over and above the authorized fare
over a period of time, this will unduly prejudice a commuter who will be made to pay a fare that has been
computed in a manner similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a thirty-
seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were allowed to impose and
collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer authorized
fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in
1990. Supposing the LTFRB grants another five (P0.05) centavo increase per kilometer in 1994, then, the base or
reference for computation would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators
will exercise their authority to impose an additional 20% over and above the authorized fare, then the fare to be
collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In
effect, commuters will be continuously subjected, not only to a double fare adjustment but to a compounding fare
as well. On their part, transport operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied
for, they can still collect an additional amount by virtue of the authorized fare range. Mathematically, the situation
translates into the following:

Year** LTFRB authorized Fare Range Fare to be

rate*** collected per
kilometer

1990 P0.37 15% (P0.05) P0.42

1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that
requires dexterity of judgment and sound discretion with the settled goal of arriving at a just and reasonable rate
acceptable to both the public utility and the public. Several factors, in fact, have to be taken into consideration
before a balance could be achieved. A rate should not be confiscatory as would place an operator in a situation
where he will continue to operate at a loss. Hence, the rate should enable public utilities to generate revenues
sufficient to cover operational costs and provide reasonable return on the investments. On the other hand, a rate
which is too high becomes discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable
and fair and must be affordable to the end user who will utilize the services.

Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of
commuters, government must not relinquish this important function in favor of those who would benefit and profit
from the industry. Neither should the requisite notice and hearing be done away with. The people, represented by
reputable oppositors, deserve to be given full opportunity to be heard in their opposition to any fare increase.

The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory arrangement for
all parties involved. To do away with such a procedure and allow just one party, an interested party at that, to
determine what the rate should be, will undermine the right of the other parties to due process. The purpose of a
hearing is precisely to determine what a just and reasonable rate is. 15 Discarding such procedural and
constitutional right is certainly inimical to our fundamental law and to public interest.

On the presumption of public need.

A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land
transportation services for public use as required by law. Pursuant to Section 16(a) of the Public Service Act, as
amended, the following requirements must be met before a CPC may be granted, to wit: (i) the applicant must be
a citizen of the Philippines, or a corporation or co-partnership, association or joint-stock company constituted and
organized under the laws of the Philippines, at least 60 per centum of its stock or paid-up capital must belong
entirely to citizens of the Philippines; (ii) the applicant must be financially capable of undertaking the proposed
service and meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the
operation of the public service proposed and the authorization to do business will promote the public interest in a
proper and suitable manner. It is understood that there must be proper notice and hearing before the PSC can
exercise its power to issue a CPC.

While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-
009, Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of a CPC. The
guidelines states:

The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public
need for a service shall be deemed in favor of the applicant, while the burden of proving that there is no need for
the proposed service shall be the oppositor's. (Emphasis ours).

The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public Service
Act which requires that before a CPC will be issued, the applicant must prove by proper notice and hearing that
the operation of the public service proposed will promote public interest in a proper and suitable manner. On the
contrary, the policy guideline states that the presumption of public need for a public service shall be deemed in
favor of the applicant. In case of conflict between a statute and an administrative order, the former must prevail.

By its terms, public convenience or necessity generally means something fitting or suited to the public need. 16 As
one of the basic requirements for the grant of a CPC, public convenience and necessity exists when the proposed
facility or service meets a reasonable want of the public and supply a need which the existing facilities do not
adequately supply. The existence or
non-existence of public convenience and necessity is therefore a question of fact that must be established by
evidence, real and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing
conducted for that purpose. The object and purpose of such procedure, among other things, is to look out for, and
protect, the interests of both the public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and
investigation, it shall find, as a fact, that the proposed operation is for the convenience of the public. 17 Basic
convenience is the primary consideration for which a CPC is issued, and that fact alone must be consistently
borne in mind. Also, existing operators in subject routes must be given an opportunity to offer proof and oppose
the application. Therefore, an applicant must, at all times, be required to prove his capacity and capability to
furnish the service which he has undertaken to
render. 18 And all this will be possible only if a public hearing were conducted for that purpose.

Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and
institutionalized judicial, quasi-judicial and administrative procedures. It allows the party who initiates the
proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending provisions of the
LTFRB memorandum circular in question would in effect amend the Rules of Court by adding another disputable
presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules of Court. Such
usurpation of this Court's authority cannot be countenanced as only this Court is mandated by law to promulgate
rules concerning pleading, practice and procedure. 19

Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the present
circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an abdication by the
government of its inherent right to exercise police power, that is, the right of government to regulate public utilities
for protection of the public and the utilities themselves.

While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the
transport sector, we find that they committed grave abuse of discretion in issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum
Circular No. 92-009 promulgating the implementing guidelines on DOTC Department Order No. 92-587, the said
administrative issuances being amendatory and violative of the Public Service Act and the Rules of Court.
Consequently, we rule that the twenty (20%) per centum fare increase imposed by respondent PBOAP on March
16, 1994 without the benefit of a petition and a public hearing is null and void and of no force and effect. No grave
abuse of discretion however was committed in the issuance of DOTC Memorandum Order No. 90-395 and DOTC
Memorandum dated October 8, 1992, the same being merely internal communications between administrative
officers.

WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged
administrative issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum
Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED contrary
to law and invalid insofar as they affect provisions therein (a) delegating to provincial bus and jeepney operators
the authority to increase or decrease the duly prescribed transportation fares; and (b) creating a presumption of
public need for a service in favor of the applicant for a certificate of public convenience and placing the burden of
proving that there is no need for the proposed service to the oppositor.

The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it enjoined
the bus fare rate increase granted under the provisions of the aforementioned administrative circulars,
memoranda and/or orders declared invalid.

No pronouncement as to costs.

SO ORDERED.

#Footnotes

1 Pantranco v. Public Service Commission, 70 Phil. 221.

2 The 20th century ushered in the birth and growth of public utility regulation in the country. After the Americans
introduced public utility regulation at the turn of the century, various regulatory bodies were created. They were
the Coastwise Rate Commission under Act No. 520 passed by the Philippine Commission on November 17, 1902;
the Board of Rate Regulation under Act No. 1779 dated October 12, 1907; the Board of Public Utility Commission
under Act No. 2307 dated December 19, 1913; and the Public Utility Commission under Act No. 3108 dated
March 19, 1923.

During the Commonwealth period, the National Assembly passed a more comprehensive public utility law. This
was Commonwealth Act No. 146, as amended or the Public Service Act, as amended. Said law created a
regulatory and franchising body known as the Public Service Commission (PSC). The Commission (PSC) existed
for thirty-six (36) years from 1936 up to 1972.

On September 24, 1972, Presidential Decree No. 1 was issued and declared "part of the law of the land." The
same effected a major revamp of the executive department. Under Article III, Part X of P.D. No. 1, the Public
Service Commission (PSC) was abolished and replaced by three (3) specialized regulatory boards. These were
the Board of Transportation, the Board of Communications, and the Board of Power and Waterworks.

The Board of Transportation (BOT) lasted for thirteen (13) years. On March 20, 1985, Executive Order No. 1011
was issued abolishing the Board of Transportation and the Bureau of Land Transportation. Their powers and
functions were merged into the Land Transportation Commission (LTC).

Two (2) years later, LTC was abolished by Executive Order Nos. 125 dated January 30, 1987 and 125-A dated
April 13, 1987 which reorganized the Department of Transportation and Communications. On June 19, 1987, the
Land Transportation Franchising and Regulatory Board (LTFRB) was created by Executive Order No. 202. The
LTFRB, successor of LTC, is the existing franchising and regulatory body for overland transportation today.
3 Sec. 1, Rule 131, Rules of Court.

4 Decision of LTFRB in Case No. 90-4794, p. 4;  Rollo, p. 59.

5 Rollo, p. 42.

6 Order of LTFRB, p. 4; Rollo, p. 55.

7 22 Phil. 456 [1912].

8 Warth v. Seldin, 422 U.S. 490, 498-499, 45 L. Ed. 2d 343, 95 S. Ct. 2197 [1975]; Guzman v. Marrero, 180 U.S.
81, 45 L. Ed. 436, 21 S.Ct. 293 [1901]; McMicken v. United States, 97 U.S. 204, 24 L. Ed. 947 [1978]; Silver Star
Citizens' Committee v. Orlando Fla. 194 So. 2d 681 [1967]; In Re Kenison's Guardianship, 72 S.D. 180, 31 N.W.
2d 326 [1948].

9 G.R. No. 113375, May 5, 1994.

10 United States v. Barrias, 11 Phil. 327, 330 [1908]; People v. Vera, 65 Phil. 56, 113 [1937].

11 Cruz, Philippine Political Law, 1991 Edition, p. 84.

12 57 Phil. 872 [1933].

13 Id., at pp. 878-879.

** Assume a four-year interval in fare adjustment as a constant.

*** Assume further a constant P0.05 centavo increase in fare every four (4) years.

14 Steps in the Filing of Petition for Rate Increase:

A Petition For Adjustment of Rate (either for increase or reduction) may be filed only by a grantee of a CPC.
Therefore, when franchise/CPC grantees or existing public utility operators foresee that the new oil price increase,
wage hikes or similar factors would threaten the survival and viability of their operations, they may then institute a
petition for increase of rates. Thus in the case of public utilities engaged in transportation, telecommunications,
energy supply (electricity) and others, the following steps are usually undertaken in seeking, particularly upwards
adjustments of rates:

1. Filing of formal Petition for Rate Increase. — This petition alleges therein among others, the present schedule
of rates, the reasons why the same is no longer economically viable and the revised schedule of rates it proposes
to charge. Attached to said Petition for financial statements, projections/studies showing possible losses from oil
price or wage hikes under the old or existing rates and possible margin of profit (which should be within the 12%
allowable limit) under the new or revised rates;

2. After the petition is docketed, a date is set for hearing for which Notice of Hearing is issued, the same to be
published in a newspaper of general circulation in the area;

3. The parties affected by the application are required to be furnished copies of the petition and the Notice of
Hearing usually by registered mail with return card. The Solicitor General is also separately notified since he is the
counsel for the Government;

4. The Technical Staff of the regulatory body concerned evaluates the documentary evidence attached to the
petition to determine whether there is warrant to the request for rate revision;

5. Then the Commission on Audit (COA) is requested by the regulatory body to conduct an audit and examination
of the books of accounts and other pertinent financial records of the public utility operator seeking the rate
revision; if the applicants/petitioners are numerous, a representative number for examination purposes would do,
and the period of operation covered usually ranges from six (6) months to one (1) year;

COA audit report is compared with that of the regulatory body. Copies of these audit reports are furnished the
petitioners and oppositors may submit their exceptions or objections thereto.

11. G.R. No. 114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners, 

vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and
Communications, and EDSA LRT CORPORATION, LTD., respondents.

QUIASON, J.:

This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing
and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for
EDSA" dated April 22, 1992, and the "Supplemental Agreement to the 22 April 1992 Revised and Restated
Agreement To Build, Lease and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993.

Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate
and are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent
Secretary of the Department of Transportation and Communications (DOTC), while private respondent EDSA LRT
Corporation, Ltd. is a private corporation organized under the laws of Hongkong.
I

In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in Metropolitan
Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA
Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit system along EDSA and alleviate the
congestion and growing transportation problem in the metropolis.

On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to
DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.

On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with DOTC.

On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," was signed by President
Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.

Republic Act No. 6957 provides for two schemes for the financing, construction and operation of government
projects through private initiative and investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT).

In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on
January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496, respectively creating
the Prequalification Bids and Awards Committee (PBAC) and the Technical Committee.

After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and
implementation of the project The notice, advertising the prequalification of bidders, was published in three
newspapers of general circulation once a week for three consecutive weeks starting February 21, 1991.

The deadline set for submission of prequalification documents was March 21, 1991, later extended to April 1,
1991. Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of
Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium,
composed of ten foreign and domestic corporations: namely, Kaiser Engineers International, Inc., ACER
Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal
Republics, TCGI Engineering All Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L.
Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz & co., Inc.

On the last day for submission of prequalification documents, the prequalification criteria proposed by the
Technical Committee were adopted by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal
aspects — 10 percent; (b) Management/Organizational capability — 30 percent; and (c) Financial capability — 30
percent; and (d) Technical capability — 30 percent (Rollo, p. 122).

On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation Rules
and Regulations thereof, approved the same.

After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of the five
applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points per criteria [sic],
except for Legal Aspects, and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal
Aspects referred to provided that the BOT/BT contractor-applicant meet the requirements specified in the
Constitution and other pertinent laws (Rollo, p. 114).

Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and was
replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters dated May 31, 1991
and June 14, 1991, respectively recommending the award of the EDSA LRT III project to the sole complying
bidder, the EDSA LRT Consortium, and requesting for authority to negotiate with the said firm for the contract
pursuant to paragraph 14(b) of the Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302).

In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the DOTC to
proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to DOTC.

Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT
Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law (Rollo, pp. 147-177).

Secretary Prado, thereafter, requested presidential approval of the contract.

In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary Orbos,
informed Secretary Prado that the President could not grant the requested approval for the following reasons: (1)
that DOTC failed to conduct actual public bidding in compliance with Section 5 of the BOT Law; (2) that the law
authorized public bidding as the only mode to award BOT projects, and the prequalification proceedings was not
the public bidding contemplated under the law; (3) that Item 14 of the Implementing Rules and Regulations of the
BOT Law which authorized negotiated award of contract in addition to public bidding was of doubtful legality; and
(4) that congressional approval of the list of priority projects under the BOT or BT Scheme provided in the law had
not yet been granted at the time the contract was awarded (Rollo, pp. 178-179).

In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated the
agreement. On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the
fact the DOTC has full authority to sign the Agreement without need of approval by the President pursuant to the
provisions of Executive Order No. 380 and that certain events [had] supervened since November 7, 1991 which
necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary
Jesus Garcia vice  Secretary Prado, and private respondent entered into a "Supplemental Agreement to the 22
April 1992 Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA"
so as to "clarify their respective rights and responsibilities" and to submit [the] Supplemental Agreement to the
President, of the Philippines for his approval" (Rollo, pp. 79-80).

Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval.
In a Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo, p. 194).

According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal
Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be
achieved-through 54 such vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level,
on the mid-section of EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue,
Quezon City. The system will have its own power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p.
55). It will also have thirteen (13) passenger stations and one depot in 16-hectare government property at North
Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).

Private respondents shall undertake and finance the entire project required for a complete operational light rail
transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or
approximately three years from the implementation date of the contract inclusive of mobilization, site works, initial
and final testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and
viability thereof, private respondent shall deliver the use and possession of the completed portion to DOTC which
shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp.
61-62, 84). DOTC shall pay private respondent rentals on a monthly basis through an Irrevocable Letter of Credit.
The rentals shall be determined by an independent and internationally accredited inspection firm to be appointed
by the parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital
shall be recovered from the rentals to be paid by the DOTC which, in turn, shall come from the earnings of the
EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall have
completed payment of the rentals, ownership of the project shall be transferred to the latter for a consideration of
only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).

On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act
Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private
Sector, and for Other Purposes" was signed into law by the President. The law was published in two newspapers
of general circulation on May 12, 1994, and took effect 15 days thereafter or on May 28, 1994. The law expressly
recognizes BLT scheme and allows direct negotiation of BLT contracts.

II

In their petition, petitioners argued that:

(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF MAY 6,
1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE
OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS
UNCONSTITUTIONAL;

(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED NOR
RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS
ILLEGAL;

(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND, HENCE, IS
UNLAWFUL;

(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD.
VIOLATES THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF THE
BOT LAW AND, HENCE, IS ILLEGAL;

(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR
PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND

(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT (Rollo, pp. 15-16).

Secretary Garcia and private respondent filed their comments separately and claimed that:

(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present petition;

(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;

(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT Law;

(4) The nationality requirement for public utilities mandated by the Constitution does not apply to private
respondent;

(5) The Agreements executed by and between respondents have been approved by President Ramos and are not
disadvantageous to the government;

(6) The award of the contract to private respondent through negotiation and not public bidding is allowed by the
BOT Law; and

(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed by the
Legislature On May 12, 1994, which provides for direct negotiation as a mode of award of infrastructure projects.
III

Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however,
countered that the action was filed by them in their capacity as Senators and as taxpayers.

The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the
national government or government-owned or controlled corporations allegedly in contravention of the law
(Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal contracts are
involved (Bugnay Construction and Development Corporation v. Laron, 176 SCRA. 240 [1989]).

For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and
uphold the legal standing of petitioners as taxpayers to institute the present action.

IV

In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:

(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the Constitution to
Filipino citizens and domestic corporations, not foreign corporations like private respondent;

(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT Scheme under the
law;

(3) the contract to construct the EDSA LRT III was awarded to private respondent not through public bidding
which is the only mode of awarding infrastructure projects under the BOT law; and

(4) the agreements are grossly disadvantageous to the government.

1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was
awarded by public respondent, is admittedly a foreign corporation "duly incorporated and existing under the laws
of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA LRT III is constructed, private
respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to operate the system and pay rentals for
said use.

The question posed by petitioners is:

Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public utility? (Rollo, p.
17).

The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks, rolling
stocks like the coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is
needed to operate these facilities to serve the public, they do not by themselves constitute a public utility. What
constitutes a public utility is not their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v.
Public Service Board, 44 Phil. 551, 557 558 [1923]).

The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does
not require a franchise before one can own the facilities needed to operate a public utility so long as it does not
operate them to serve the public.

Section 11 of Article XII of the Constitution provides:

No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines
at least sixty  per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive character or for a longer period than fifty years . . . (Emphasis supplied).

In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and
equipment used to serve the public.

Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely
subjected to his will in everything not prohibited by law or the concurrence with the rights of another (Tolentino, II
Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]).

The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and
used to serve the public as a public utility unless the operator has a franchise. The operation of a rail system as a
public utility includes the transportation of passengers from one point to another point, their loading and unloading
at designated places and the movement of the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A..
Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30
Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).

The right to operate a public utility may exist independently and separately from the ownership of the facilities
thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a
public utility without owning the facilities used to serve the public. The devotion of property to serve the public may
be done by the owner or by the person in control thereof who may not necessarily be the owner thereof.

This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public
can be very well appreciated when we consider the transportation industry. Enfranchised airline and shipping
companies may lease their aircraft and vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is
not enfranchised to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of
this incapacity, private respondent and DOTC agreed that on completion date, private respondent will immediately
deliver possession of the LRT system by way of lease for 25 years, during which period DOTC shall operate the
same as a common carrier and private respondent shall provide technical maintenance and repair services to
DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical
maintenance consists of providing (1) repair and maintenance facilities for the depot and rail lines, services for
routine clearing and security; and (2) producing and distributing maintenance manuals and drawings for the entire
system (Revised and Restated Agreement, Annex F).

Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and
repair of the rolling stock, power plant, substations, electrical, signaling, communications and all other equipment
as supplied in the agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of
theoretical and live training of DOTC operational personnel which includes actual driving of light rail vehicles
under simulated operating conditions, control of operations, dealing with emergencies, collection, counting and
securing cash from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel
of DOTC will work under the direction and control of private respondent only during training (Revised and
Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that upon completion of
the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in their employ personnel
capable of undertaking training of all new and replacement personnel (Revised and Restated Agreement, Annex
E Sec. 5.1). In other words, by the end of the three-year construction period and upon commencement of normal
revenue operation, DOTC shall be able to operate the EDSA LRT III on its own and train all new personnel by
itself.

Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost, cost
of replacement of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of
return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).

Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier.
For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries
or death which may be claimed in the operation or implementation of the system, except losses, damages, injury
or death due to defects in the EDSA LRT III on account of the defective condition of equipment or facilities or the
defective maintenance of such equipment facilities (Revised and Restated Agreement, Secs. 12.1 and
12.2; Rollo, p. 68).

In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no
dealings with the public and the public will have no right to demand any services from it.

It is well to point out that the role of private respondent as lessor during the lease period must be distinguished
from the role of the Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v.
Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between PGMC and the Philippine Charity
Sweepstakes Office (PCSO) was actually a collaboration or joint venture agreement prescribed under the charter
of the PCSO. In the Contract of Lease; PGMC, the lessor obligated itself to build, at its own expense, all the
facilities necessary to operate and maintain a nationwide on-line lottery system from whom PCSO was to lease
the facilities and operate the same. Upon due examination of the contract, the Court found that PGMC's
participation was not confined to the construction and setting up of the on-line lottery system. It spilled over to the
actual operation thereof, becoming indispensable to the pursuit, conduct, administration and control of the highly
technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to PGMC which actually
operated and managed the same.

Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence and W.R.
Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205
N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S.
434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply cars
under contract to railroad companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174
p. 2d 984, 987 [1946]).

Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one
operating a public utility. The moment for determining the requisite Filipino nationality is when the entity applies for
a franchise, certificate or any other form of authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).

2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in the BOT
Law and its Implementing Rules and Regulations.

Section 2 of the BOT Law defines the BOT and BT schemes as follows:

(a) Build-operate-and-transfer scheme — A contractual arrangement whereby the contractor undertakes the
construction including financing, of a given infrastructure facility, and the operation and maintenance thereof. The
contractor operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls,
fees, rentals and charges sufficient to enable the contractor to recover its operating and maintenance expenses
and its investment in the project plus a reasonable rate of return thereon. The contractor transfers the facility to
the government agency or local government unit concerned at the end of the fixed term which shall not exceed
fifty (50) years. For the construction stage, the contractor may obtain financing from foreign and/or domestic
sources and/or engage the services of a foreign and/or Filipino constructor [sic]: Provided, That the ownership
structure of the contractor of an infrastructure facility whose operation requires a public utility franchise must be in
accordance with the Constitution: Provided, however, That in the case of corporate investors in the build-operate-
and-transfer corporation, the citizenship of each stockholder in the corporate investors shall be the basis for the
computation of Filipino equity in the said corporation: Provided, further, That, in the case of foreign constructors
[sic], Filipino labor shall be employed or hired in the different phases of the construction where Filipino skills are
available: Provided, furthermore, that the financing of a foreign or foreign-controlled contractor from Philippine
government financing institutions shall not exceed twenty percent (20%) of the total cost of the infrastructure
facility or project: Provided, finally, That financing from foreign sources shall not require a guarantee by the
Government or by government-owned or controlled corporations. The build-operate-and-transfer scheme shall
include a supply-and-operate situation which is a contractual agreement whereby the supplier of equipment and
machinery for a given infrastructure facility, if the interest of the Government so requires, operates the facility
providing in the process technology transfer and training to Filipino nationals.

(b) Build-and-transfer scheme — "A contractual arrangement whereby the contractor undertakes the construction
including financing, of a given infrastructure facility, and its turnover after completion to the government agency or
local government unit concerned which shall pay the contractor its total investment expended on the project, plus
a reasonable rate of return thereon. This arrangement may be employed in the construction of any infrastructure
project including critical facilities which for security or strategic reasons, must be operated directly by the
government (Emphasis supplied).

The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in
infrastructure facility, and operates and maintains the same. The contractor operates the facility for a fixed period
during which it may recover its expenses and investment in the project plus a reasonable rate of return thereon.
After the expiration of the agreed term, the contractor transfers the ownership and operation of the project to the
government.

In the BT scheme, the contractor undertakes the construction and financing of the facility, but after completion, the
ownership and operation thereof are turned over to the government. The government, in turn, shall pay the
contractor its total investment on the project in addition to a reasonable rate of return. If payment is to be effected
through amortization payments by the government infrastructure agency or local government unit concerned, this
shall be made in accordance with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957,
Sec. 6).

Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the
citizenship requirement of the Constitution on the operation of a public utility. No such a requirement is imposed in
the BT scheme.

There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the payment by
the government of the project cost. The law must not be read in such a way as to rule out or unduly restrict any
variation within the context of the two schemes. Indeed, no statute can be enacted to anticipate and provide all
the fine points and details for the multifarious and complex situations that may be encountered in enforcing the
law (Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United
States v. Tupasi Molina, 29 Phil. 119 [1914]).

The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.

As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by
allowing it to amortize payments out of the income from the operation of the LRT System.

In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis
according to a schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter of
Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment shall have
been made to and received by private respondent, it shall transfer to DOTC, free from any lien or encumbrances,
all its title to, rights and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1;
Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).

A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a thing for a
certain price and for a period which may be definite or indefinite but not longer than 99 years (Civil Code of the
Philippines, Art. 1643). There is no transfer of ownership at the end of the lease period. But if the parties stipulate
that title to the leased premises shall be transferred to the lessee at the end of the lease period upon the payment
of an agreed sum, the lease becomes a lease-purchase agreement.

Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos.
The EDSA LRT III Project is a high priority project certified by Congress and the National Economic and
Development Authority as falling under the Investment Priorities Plan of Government (Rollo, pp. 310-311). It is,
therefore, outside the application of the Uniform Currency Act (R.A. No. 529), which reads as follows:

Sec. 1. — Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation
contracted in the Philippines which provisions purports to give the obligee the right to require payment in gold or in
a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines
measured thereby, be as it is hereby declared against public policy, and null, void, and of no effect, and no such
provision shall be contained in, or made with respect to, any obligation hereafter incurred. The above prohibition
shall not apply to (a) . . .; (b) transactions affecting high-priority economic projects for agricultural, industrial and
power development as may be determined by
the National Economic Council which are financed by or through foreign funds; . . . .

3. The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation and before
congressional approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by the
private sector pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award.

Subsequent congressional approval of the list including "rail-based projects packaged with commercial
development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls, amounts to a ratification of
the prior award of the EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the contract appears to
have been rigged from the very beginning to do away with the usual open international public bidding where
qualified internationally known applicants could fairly participate.

The records show that only one applicant passed the prequalification process. Since only one was left, to conduct
a public bidding in accordance with Section 5 of the BOT Law for that lone participant will be an absurb and
pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential
Decree No. 1594 allows the negotiated award of government infrastructure projects.

Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government
Infrastructure Contracts," allows the negotiated award of government projects in exceptional cases. Sections 4 of
the said law reads as follows:

Bidding. — Construction projects shall generally be undertaken by contract after competitive public
bidding. Projects may be undertaken by administration or force account or by negotiated contract only in
exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or
where there is conclusive evidence that greater economy and efficiency would be achieved through this
arrangement, and in accordance with provision of laws and acts on the matter, subject to the approval of the
Minister of Public Works and Transportation and Communications, the Minister of Public Highways, or the Minister
of Energy, as the case may be, if the project cost is less than P1 Million, and the President of the Philippines,
upon recommendation of the Minister, if the project cost is P1 Million or more (Emphasis supplied).

xxx xxx xxx

Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure contracts
may he made by negotiation. Presidential Decree No. 1594 is the general law on government infrastructure
contracts while the BOT Law governs particular arrangements or schemes aimed at encouraging private sector
participation in government infrastructure projects. The two laws are not inconsistent with each other but are
in  pari materia and should be read together accordingly.

In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none of the
competing firms ever brought the matter before the PBAC, or intervened in this case before us (cf. Malayan
Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President,
205 SCRA 705 [1992]).

The challenged agreements have been approved by President Ramos himself. Although then Executive Secretary
Drilon may have disapproved the "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA,"
there is nothing in our laws that prohibits parties to a contract from renegotiating and modifying in good faith the
terms and conditions thereof so as to meet legal, statutory and constitutional requirements. Under the
circumstances, to require the parties to go back to step one of the prequalification process would just be an idle
ceremony. Useless bureaucratic "red tape" should be eschewed because it discourages private sector
participation, the "main engine" for national growth and development (R.A. No. 6957, Sec. 1), and renders the
BOT Law nugatory.

Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:

(e) Build-lease-and-transfer — A contractual arrangement whereby a project proponent is authorized to finance

and construct an infrastructure or development facility and upon its completion turns it over to the government
agency or local government unit concerned on a lease arrangement for a fixed period after which ownership of the
facility is automatically transferred to the government unit concerned.

Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:

Direct Negotiation of Contracts. — Direct negotiation shall be resorted to when there is only one complying bidder
left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification and it meets the prequalification
requirements, after which it is required to submit a bid proposal which is subsequently found by the agency/local
government unit (LGU) to be complying.

(b) If, after advertisement, more than one contractor applied for prequalification but only one meets the
prequalification requirements, after which it submits bid/proposal which is found by the agency/local government
unit (LGU) to be complying.

(c) If, after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU
to be complying.

(d) If, after prequalification, more than one contractor submit bids but only one is found by the agency/LGU to be
complying. Provided, That, any of the disqualified prospective bidder [sic] may appeal the decision of the
implementing agency, agency/LGUs prequalification bids and awards committee within fifteen (15) working days
to the head of the agency, in case of national projects or to the Department of the Interior and Local Government,
in case of local projects from the date the disqualification was made known to the disqualified bidder: Provided,
furthermore, That the implementing agency/LGUs concerned should act on the appeal within forty-five (45)
working days from receipt thereof.

Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the BOT Law
has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law authorizes all government
infrastructure agencies, government-owned and controlled corporations and local government units to enter into
contract with any duly prequalified proponent for the financing, construction, operation and maintenance of any
financially viable infrastructure or development facility through a BOT, BT, BLT, BOO (Build-own-and-operate),
CAO (Contract-add-operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and
ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).

From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated in
Section 2 thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3).

Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of
minimum government regulations and procedures and specific government undertakings in support of the private
sector" (Sec. 1). A curative statute makes valid that which before enactment of the statute was invalid. Thus,
whatever doubts and alleged procedural lapses private respondent and DOTC may have engendered and
committed in entering into the questioned contracts, these have now been cured by R.A. No. 7718
(cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA
1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].

4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because the
rental rates are excessive and private respondent's development rights over the 13 stations and the depot will rob
DOTC of the best terms during the most productive years of the project.

It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period of 25
years, exclusive rights over the depot and the air space above the stations for development into commercial
premises for lease, sublease, transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For
and in consideration of these development rights, private respondent shall pay DOTC in Philippine currency
guaranteed revenues generated therefrom in the amounts set forth in the Supplemental Agreement (Sec.
11; Rollo, p. 93). In the event that DOTC shall be unable to collect the guaranteed revenues, DOTC shall be
allowed to deduct any shortfalls from the monthly rent due private respondent for the construction of the EDSA
LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all
contracts on the commercial spaces shall revert to DOTC upon expiration of the 25-year period. (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92).

The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the proper
administrative agencies and officials who have acquired expertise, specialized skills and knowledge in the
performance of their functions should be accorded respect absent any showing of grave abuse of discretion
(Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v.
Alfonso, 176 SCRA 304 [1989]).

Government officials are presumed to perform their functions with regularity and strong evidence is necessary to
rebut this presumption. Petitioners have not presented evidence on the reasonable rentals to be paid by the
parties to each other. The matter of valuation is an esoteric field which is better left to the experts and which this
Court is not eager to undertake.

That the grantee of a government contract will profit therefrom and to that extent the government is deprived of
the profits if it engages in the business itself, is not worthy of being raised as an issue. In all cases where a party
enters into a contract with the government, he does so, not out of charity and not to lose money, but to gain
pecuniarily.

5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental
function. DOTC is the primary policy, planning, programming, regulating and administrative entity of the Executive
branch of government in the promotion, development and regulation of dependable and coordinated networks of
transportation and communications systems as well as in the fast, safe, efficient and reliable postal, transportation
and communications services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive
department, DOTC in particular that has the power, authority and technical expertise determine whether or not a
specific transportation or communication project is necessary, viable and beneficial to the people. The discretion
to award a contract is vested in the government agencies entrusted with that function (Bureau Veritas v. Office of
the President, 205 SCRA 705 [1992]).

WHEREFORE, the petition is DISMISSED.

SO ORDERED

Bellosillo and Kapunan, JJ., concur.

Padilla and Regalado, JJ., concurs in the result.

Romero, J., is on leave.

Separate Opinions

MENDOZA, J., concurring:

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing to sue, I join
to dismiss the petition in this case. I write only to set forth what I understand the grounds for our decisions on the
doctrine of standing are and, why in accordance with these decisions, petitioners do not have the rights to sue,
whether as legislators, taxpayers or citizens. As members of Congress, because they allege no infringement of
prerogative as legislators.1 As taxpayers because petitioners allege neither an unconstitutional exercise of the
taxing or spending powers of Congress (Art VI, §§24-25 and 29)2 nor an illegal disbursement of public money.3 As
this Court pointed out in Bugnay Const. and Dev.  Corp. v. Laron,4 a party suing as taxpayer "must specifically
prove that he has sufficient interest in preventing the illegal expenditure of money raised by taxation and that he
will sustain a direct injury as a result of the enforcement of the questioned statute or contract. It is not sufficient
that he has merely a general interest common to all members of the public." In that case, it was held that a
contract, whereby a local government leased property to a private party with the understanding that the latter
would build a market building and at the end of the lease would transfer the building of the lessor, did not involve
a disbursement of public funds so as to give taxpayer standing to question the legality of the contract. I see no
substantial difference, as far as the standing is of taxpayers to question public contracts is concerned, between
the contract there and the build-lease-transfer (BLT) contract being questioned by petitioners in this case.

Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were authorized to
sue, this Court found standing because it thought the constitutional claims pressed for decision to be of
"transcendental importance," as in fact it subsequently granted relief to petitioners by invalidating the challenged
statutes or governmental actions. Thus in the Lotto case6 relied upon by the majority for upholding petitioners
standing, this Court took into account the "paramount public interest" involved which "immeasurably affect[ed] the
social, economic, and moral well-being of the people . . . and the counter-productive and retrogressive effects of
the envisioned on-line lottery system:"7 Accordingly, the Court invalidated the contract for the operation of lottery.

But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive contentions to be
without merit To the extent therefore that a party's standing is affected by a determination of the substantive merit
of the case or a preliminary estimate thereof, petitioners in the case at bar must be held to be without standing.
This is in line with our ruling in Lawyers League for a Better Philippines v. Aquino 8 and In re Bermudez  9 where
we dismissed citizens' actions on the ground that petitioners had no personality to sue and their petitions did not
state a cause of action. The holding that petitioners did not have standing followed from the finding that they did
not have a cause of action.

In order that citizens' actions may be allowed a party must show that he personally has suffered some actual or
threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly traceable to the
challenged action; and the injury is likely to be redressed by a favorable action. 10 As the U.S. Supreme Court has
held:

Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation to ascertain
whether the particular plaintiff is entitled to an adjudication of the particular claims asserted. Is the injury too
abstract, or otherwise not appropriate, to be considered judicially cognizable? Is the line of causation between the
illegal conduct and injury too attenuated? Is the prospect of obtaining relief from the injury as a result of a
favorable ruling too speculative? These questions and any others relevant to the standing inquiry must be
answered by reference to the Art III notion that federal courts may exercise power only "in the last resort, and as a
necessity, Chicago & Grand Trunk R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and
only when adjudication is "consistent with a system of separated powers and [the dispute is one] traditionally
thought to be capable of resolution through the judicial process," Flast v Cohen, 392 US 83, 97, 20 L Ed 2d 947,
88 S Ct 1942 (1968). See  Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752.11

Today's holding that a citizen, qua citizen, has standing to question a government contract unduly expands the
scope of public actions and sweeps away the case and controversy requirement so carefully embodied in Art. VIII,
§5 in defining the jurisdiction of this Court. The result is to convert the Court into an office of ombudsman for the
ventilation of generalized grievances. Consistent with the view that this case has no merit I submit with respect
that petitioners, as representatives of the public interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.

DAVIDE, JR., J.,  dissenting:

After wading through the record of the vicissitudes of the challenged contract and evaluating the issues raised and
the arguments adduced by the parties, I find myself unable to joint majority in the well-written ponencia  of Mr.
Justice Camilo P. Quiason.

I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-ultra-vires act of
the Department of Transportation and Communications (DOTC) since under R.A. 6957 the DOTC has no
authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has, the
contract was entered into without complying with the mandatory requirement of public bidding.

Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An Act
Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private
Sector, and For Other Purposes," recognizes only two (2) kinds of contractual arrangements between the private
sector and government infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) scheme and (b) the
Build-and-Transfer (BT) scheme. This conclusion finds support in Section 2 thereof which defines only the BOT
and BT schemes, in Section 3 which explicitly provides for said schemes thus:

Sec. 3 Private Initiative in Infrastructure. — All government infrastructure agencies, including government-owned
and controlled corporations and local government units, are hereby authorized to enter into contract with any duly
prequalified private contractor for the financing, construction, operation and maintenance of any financially viable
infrastructure facilities through the build-operate-and transfer or build-and-transfer scheme, subject to the terms
and conditions hereinafter set forth; (Emphasis supplied).

and in Section 5 which requires public bidding of projects under both schemes.

All prior acts and negotiations leading to the perfection of the challenged contract were clearly intended and
pursued for such schemes.
A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the aforesaid prior
acts and negotiations were designed for such unauthorized scheme. Hence, the DOTC is without any power or
authority to enter into the BLT contract in question.

The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the BOT and the
BT schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law
must not be read in such a way as to rule outer unduly restrict any variation within the context of the two
schemes." This interpretation would be correct if the law itself provides a room for flexibility. We find no such
provisions in R.A. No. 6957 if it intended to include a BLT scheme, then it should have so stated, for contracts of
lease are not unknown in our jurisdiction, and Congress has enacted several laws relating to leases. That the BLT
scheme was never intended as a permissible variation "within the context" of the BOT and BT schemes is
conclusively established by the passage of R.A. No. 7718 which amends:

Section 2 by adding to the original BOT and BT schemes the following schemes:

(1) Build-own-and-operate (BOO)

(2) Build-Lease-and-transfer (BLT)
(3) Build-transfer-and-operate (BTO)
(4) Contract-add-and-operate (CAO)
(5) Develop-operate-and-transfer (DOT)
(6) Rehabilitate-operate-and-transfer (ROT)
(7) Rehabilitate-own-and-operate (ROO).
b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-operate-and-transfer or build-
and-transfer scheme."

II

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:

Sec. 5 Public Bidding of Projects. — Upon approval of the projects mentioned in Section 4 of this Act, the
concerned head of the infrastructure agency or local government unit shall forthwith cause to be published, once
every week for three (3) consecutive weeks, in at least two (2) newspapers of general circulation and in at least
one (1) local newspaper which is circulated in the region, province, city or municipality in which the project is to be
constructed a notice inviting all duly prequalified infrastructure contractors to participate in the public bidding for
the projects so approved. In the case of a build-operate-and-transfer arrangement, the contract shall be awarded
to the lowest complying bidder based on the present value of its proposed tolls, fees, rentals, and charges over a
fixed term for the facility to be constructed, operated, and maintained according to the prescribed minimum design
and performance standards plans, and specifications. For this purpose, the winning contractor shall be
automatically granted by the infrastructure agency or local government unit the franchise to operate and maintain
the facility, including the collection of tolls, fees, rentals; and charges in accordance with Section 6 hereof.

In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder
based on the present value of its proposed, schedule of amortization payments for the facility to be constructed
according to the prescribed minimum design and performance standards, plans and specifications: Provided,
however, That a Filipino constructor who submits an equally advantageous bid shall be given preference.

A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be submitted to Congress

for its information.

The requirement of public bidding is not an idle ceremony. It has been aptly said that in our jurisdiction "public
bidding is the policy and medium adhered to in Government procurement and construction contracts under
existing laws and regulations. It is the accepted method for arriving at a fair and reasonable price and ensures
that overpricing, favoritism, and other anomalous practices are eliminated or minimized. And any Government
contract entered into without the required bidding is null and void and cannot adversely affect the rights of third
parties." (Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE
LAW 25 [rev. ed. 1991], citing Caltex vs.  Delgado Bros., 96 Phil. 368 [1954]).

The Office of the President, through then Executive Secretary Franklin Drilon Correctly disapproved the contract
because no public bidding is strict compliance with Section 5 of R.A. No. 6957 was conducted. Secretary Drilon
Further bluntly stated that the provision of the Implementing Rules of said law authorizing negotiated contracts
was of doubtful legality. Indeed, it is null and void because the law itself does not recognize or allow negotiated
contracts.

However the majority opinion posits the view that since only private respondent EDSA LRT was prequalified, then
a public bidding would be "an absurd and pointless exercise." I submit that the mandatory requirement of public
bidding cannot be legally dispensed with simply because only one was qualified to bid during the prequalification
proceedings. Section 5 mandates that the BOT or BT contract should be awarded "to the lowest complying
bidder," which logically means that there must at least be two (2) bidders. If this minimum requirement is not met,
then the proposed bidding should be deferred and a new prequalification proceeding be scheduled. Even those
who were earlier disqualified may by then have qualified because they may have, in the meantime, exerted efforts
to meet all the qualifications.

This view of the majority would open the floodgates to the rigging of prequalification proceedings or to unholy
conspiracies among prospective bidders, which would even include dishonest government officials. They could
just agree, for a certain consideration, that only one of them qualify in order that the latter would automatically
corner the contract and obtain the award.
That section 5 admits of no exception and that no bidding could be validly had with only one bidder is likewise
conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a new section
denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation contracts. This new
section reads:

Sec. 5-A. Direct Negotiation Of Contracts — Direct negotiation, shall be resorted to when there is only one
complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification requirements, after which it is required
to submit a bid/proposal which subsequently found by the agency/local government unit (LGU) to be complying.

(b) If, after advertisement, more than one contractor applied for prequalification but only one meets the
prequalification requirements, after which it submits bid/proposal which is found by the agency/local government
unit (LGU) to be complying,

(c) If after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU
to be complying.

(d) If, after prequalification, more than one contractor, only one submit bids but only one is found by the
agency/LGU to be complying: Provided, That, any of the disqualified prospective bidder may appeal the decision
contractor of the implementing agency/LGUs prequalification bids an award committee within fifteen (15) working
days to the head of the agency, in case of national projects or to the Department of the Interior and Local
Government, in case of local projects from the date the disqualification was made known to the disqualified
bidder Provided, That the implementing agency/LGUs concerned should act on the appeal within forty-five (45)
working days from receipt thereof.

Can this amendment be given retroactive effect to the challenged contract so that it may now be considered a
permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not provide that it should be given
retroactive effect to pre-existing contracts. Section 18 thereof says that it "shall take effect fifteen (15) days after
its publication in at least two (2) newspapers of general circulation." If it were the intention of Congress to give
said act retroactive effect then it would have so expressly provided. Article 4 of the Civil Code provides that "[l]aws
shall have no retroactive effect, unless the contrary is provided."

The presumption is that all laws operate prospectively, unless the contrary clearly appears or is clearly, plainly,
and unequivocally expressed or necessarily implied. In every case of doubt, the doubt will be resolved against the
retroactive application of laws. (Ruben E Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to
amendatory acts, or acts which change an existing statute, Sutherland states:

In accordance with the rule applicable to original acts, it is presumed that provisions added by the amendment
affecting substantive rights are intended to operate prospectively. Provisions added by the amendment that affect
substantive rights will not be construed to apply to transactions and events completed prior to its enactment
unless the legislature has expressed its intent to that effect or such intent is clearly implied by the language of the
amendment or by the circumstances surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S
STATUTES AND STATUTORY CONSTRUCTION 434-436 [1943 ed.]).

I vote then to grant the instant petition and to declare void the challenged contract and its supplement.

FELICIANO, J.,  dissenting:

After considerable study and effort, and with much reluctance, I find I must dissent in the instant case. I agree with
many of the things set out in the majority opinion written by my distinguished brother in the Court Quiason, J. At
the end of the day, however, I find myself unable to join in the result reached by the majority.

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly narrow
grounds. At the same time; I wish to address briefly one of the points made by Justice Quiason in the majority
opinion in his effort to meet the difficulties posed by Davide Jr., J.

I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled:
"Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts·" More
specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as follows:

Sec. 4. Bidding. — Construction projects shall, generally be undertaken by contract after competitive public
bidding. Projects may be undertaken by administration or force account or by negotiated contract only in
exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or
where there is a conclusive evidence that greater economy and efficiency would be achieved through this
arrangement, and in accordance with provisions of laws and acts on the matter, subject to the approval of the
Ministry of public Works, Transportation and Communications, the Minister of Public Highways, or the Minister of
Energy, as the case may be, if the project cost is less than P1 Million, and of the President of the Philippines,
upon the recommendation of the Minister, if the project cost is P1 Million or more.

xxx xxx xxx

I understand the unspoken theory in the majority opinion to be that above Section 4 and presumably the rest of
Presidential Decree No. 1594 continue to exist and to run parallel to the provisions of Republic Act No. 6957,
whether in its original form or as amended by Republic Act No. 7718.

A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to all "government
contracts for infrastructure and other  construction projects." But Republic Act No. 6957 as amended by Republic
Act No. 7718, relates only to "infrastructure projects" which are financed, constructed, operated and maintained
"by the private sector"  "through the build/operate-and-transfer  or build-and-transfer scheme" under Republic Act
No. 6597 and under a series of other comparable schemes under Republic Act No. 7718. In other words,
Republic Act No. 6957 and Republic Act. No. 7718 must be held, in my view, to be special statutes applicable to a
more limited field of "infrastructure projects" than the wide-ranging scope of application of the  general statute i.e.,
Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that Republic Act
No. 6957 in specific connection with BCT- and BLT type and BLT type of contracts imposed
an unqualified requirement of public bidding set out in Section 5 thereof.

It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by
administration or force account or by negotiated contract only"

(1) in exceptional cases where time is of the essence; or

(2) where there is lack of bidders or contractors; or

(3) where there is a conclusive evidence that greater economy and efficiency would be achieved through these
arrangements, and in accordance with provision[s] of laws and acts on the matter.

It must, upon the one hand, be noted that the special law Republic Act No. 6957 made absolutely no mention of
negotiated contracts being permitted to displace the requirement of public bidding. Upon the other hand, Section
5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act No. 7718, does not purport to
authorize direct negotiation of contracts situations where there is a lack of pre-qualified contractors or, complying
bidders. Thus, even under the amended special statute, entering into contracts by negotiation
is not permissible in the other (2) categories of cases referred to in Section 4 of Presidential Decree
No. 1594, i.e., "in exceptional cases where time is of the essence" and "when there is conclusive evidence that
greater economy and efficiency would be achieved through these arrangements, etc."

The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public bidding
requirement is that set out in Republic Act No. 6957 and, with respect to such type of contracts opened for pre-
qualification and bidding after the date of effectivity of Republic Act No. 7718,  The provision of Republic Act No.
7718. The assailed contract was entered into before Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of Presidential Degree No. 1594 to the Edsa LRT-type of contracts are
aggravated when one considers the detailed "Implementing Rules and Regulations as amended April 1988"
issued under that Presidential Decree.1 For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

a. In times of emergencies arising from natural calamities where immediate action is necessary to prevent
imminent loss of life and/or property.

b. Failure to award the contract after competitive public bidding for valid cause or causes [such as where the
prices obtained through public bidding are all above the AAE and the bidders refuse to reduce their prices to the
AAE].

In these cases, bidding may be undertaken through sealed canvass of at least three (3) qualified contractors.
Authority to negotiate contracts for projects under these exceptional cases shall be subject to prior approval by
heads of agencies within their limits of approving authority.

c. Where the subject project is adjacent or contiguous to an on-going project and it could be economically
prosecuted by the same contractor provided that he has no negative slippage and has demonstrated a
satisfactory performance. (Emphasis supplied).

Note that there is no reference at all in these Presidential Decree No. 1594 Implementing Rules and Regulations
to absence of pre-qualified applicants and bidders as justifying negotiation of contracts as distinguished from
requiring public bidding or a second public bidding.

Note also the following provision of the same Implementing Rules and Regulations:

IB 1 Prequalification

The following may be become contractors for government projects:

1 Filipino

a. Citizens (single proprietorship)

b. Partnership of  corporation duly organized under the laws of the Philippines, and at least seventy five percent
(75%) of the capital stock of which belongs to Filipino citizens.

2. Contractors forming themselves into a joint venture, i.e., a group of two or more contractors that intend to be
jointly and severally responsible for a particular contract, shall for purposes of bidding/tendering comply with LOI
630, and, aside from being currently and properly accredited by the Philippine Contractors Accreditation Board,
shall comply with the provisions of R.A. 4566, provided thatjoint ventures in which Filipino ownership is less than
seventy five percent ( 75%) may be prequalified where the structures to be built require the  application
of techniques and/or technologies which are not adequately possessed by a Filipino entity as defined above.
[The foregoing shall not negate any existing and future commitments with respect to the bidding and aware of
contracts financed partly or wholly with funds from international lending institutions like the Asian Development
Bank and the Worlds Bank as well as from bilateral and other similar sources.(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT Corporation; there is no
suggestion that this corporation is organized under Philippine law and is at least seventy-five (75%) percent
owned by Philippine citizens.

Public bidding is the normal method by which a government keeps contractors honest and is able to assure itself
that it would be getting the best possible value for its money in any construction or similar project. It is not for
nothing that multilateral financial organizations like the World Bank and the Asian Development Bank uniformly
require projects financed by them to be implemented and carried out by public bidding. Public bidding is much too
important a requirement casually to loosen by a latitudinarian exercise in statutory construction.

The instant petition should be granted and the challenged contract and its supplement should be nullified and set
aside. A true public bidding, complete with a new prequalification proceeding, should be required for the Edsa
LRT Project.

Separate Opinions

MENDOZA, J., concurring:

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing to sue, I join
to dismiss the petition in this case. I write only to set forth what I understand the grounds for our decisions
petitioners do not have the rights to sue, whether as legislators, taxpayers or citizens. As members of Congress,
because they allege no infringement of prerogative as legislators. 1 As taxpayers because petitioners allege
neither an unconstitutional exercise of the taxing or spending powers of Congress (Art VI, §§24-25 and 29)2 nor
an illegal disbursement of public money.3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron,4 a
party suing as taxpayer "must specifically prove that he has sufficient interest in preventing the illegal expenditure
of money raised by taxation and that he will sustain a direct injury as a result of the enforcement of the questioned
statute or contract, It is not sufficient that has merely a general interest common to all members of the public." In
that case, it was held that a contract, whereby a local government leased property to a private party with the
understanding that the latter would build a market building and at the end of the lease would transfer the building
of the lessor, did not involve a disbursement of public funds so as to give taxpayer standing to question the
legality of the contract contracts I see no substantial difference, as far as the standing is of taxpayers is
concerned, between the contract there and the build-lease-transfer (BLT) contract being questioned by petitioners
in this case.

Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were authorized to
sue, this Court found standing because it thought the constitutional claims pressed for decision to be of
"transcendental importance," as in fact it subsequently granted relief to petitioners by invalidating the challenged
statutes or governmental actions. Thus in the Lotto case6 relied upon by the majority for upholding petitioners
standing, this Court took into account the "paramount public interest" involved which "immeasurably affect[ed] the
social, economic, and moral well-being of the people . . . and the counter-productive and retrogressive effects of
the envisioned on-line lottery system:"7 Accordingly, the Court invalidated the contract for the operation of lottery.

But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive contentions to be
without merit To the extent therefore that a party's standing is affected by a determination of the substantive merit
of the case or a preliminary estimate thereof, petitioners in the case at bar must be held to be without standing.
This is in line with our ruling in Lawyers League for a Better Philippines v. Aquino8 and In re Bermudez9 where we
dismissed citizens' actions on the ground that petitioners had no personality to sue and their petitions did not state
a cause of action. The holding that petitioners did not have standing followed from the finding that they did not
have a cause of action.

In order that citizens' actions may be allowed a party must show that he personally has suffered some actual or
threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly traceable to the
challenged action; and the injury is likely to be redressed by a favorable action. 10 As the U.S. Supreme Court has
held:

Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation to ascertain
whether the particular plaintiff is entitled to an adjudication of the particular claims asserted. Is the injury too
abstract, or otherwise not appropriate, to be considered judicially cognizable? Is the line of causation between the
illegal conduct and injury too attenuated? Is the prospect of obtaining relief from the injury as a result of a
favorable ruling too speculative? These questions and any others relevant to the standing inquiry must be
answered by reference to the Art III notion that federal courts may exercise power only "in the last resort, and as a
necessity, Chicago & Grand Trunk R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and
only when adjudication is "consistent with a system of separated powers and [the dispute is one] traditionally
thought to be capable of resolution through the judicial process," Flast v Cohen, 392 US 83, 97, 20 L Ed 2d 947, .
88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752.11

Today's holding that a citizen, qua citizen, has standing to question a government contract unduly expands the
scope of public actions and sweeps away the case and controversy requirement so carefully embodied in Art. VIII,
§5 in defining the jurisdiction of this Court. The result is to convert the Court into an office of ombudsman for the
ventilation of generalized grievances. Consistent with the view that this case has no merit I submit with respect
that petitioners, as representatives of the public interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.

DAVIDE, JR., J.,  dissenting:

After wading through the record of the vicissitudes of the challenged contract and evaluating the issues raised and
the arguments adduced by the parties, I find myself unable to joint majority in the well-written ponencia  of Mr.
Justice Camilo P. Quiason.

I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-ultra-vires act of
the Department of Transportation and Communications (DOTC) since under R.A. 6957 the DOTC has no
authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has, the
contract was entered into without complying with the mandatory requirement of public bidding.

Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An Act
Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private
Sector, and For Other Purposes," recognizes only two (2) kinds of contractual arrangements between the private
sector and government infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) scheme and (b) the
Build-and-Transfer (BT) scheme. This conclusion finds support in Section 2 thereof which defines only the BOT
and BT schemes, in Section 3 which explicitly provides for said schemes thus:

Sec. 3 Private Initiative in Infrastructure. — All government infrastructure agencies, including government-owned
and controlled corporations and local government units, are hereby authorized to enter into contract with any duly
prequalified private contractor for the financing, construction, operation and maintenance of any financially viable
infrastructure facilities through the build-operate-and transfer or build-and-transfer scheme, subject to the terms
and conditions hereinafter set forth; (Emphasis supplied).

and in Section 5 which requires public bidding of projects under both schemes.

All prior acts and negotiations leading to the perfection of the challenged contract were clearly intended and
pursued for such schemes.

A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the aforesaid prior
acts and negotiations were designed for such unauthorized scheme. Hence, the DOTC is without any power or
authority to enter into the BLT contract in question.

The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the BOT and the
BT schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law
must not be read in such a way as to rule outer unduly restrict any variation within the context of the two
schemes." This interpretation would be correct if the law itself provides a room for flexibility. We find no such
provisions in R.A. No. 6957 if it intended to include a BLT scheme, then it should have so stated, for contracts of
lease are not unknown in our jurisdiction, and Congress has enacted several laws relating to leases. That the BLT
scheme was never intended as a permissible variation "within the context" of the BOT and BT schemes is
conclusively established by the passage of R.A. No. 7718 which amends:

Section. 2 by adding to the original BOT and BT schemes the following schemes:

1) Build-own-and-operate (BOO)
2) Build-Lease-and-transfer (BLT)
3) Build-transfer-and-operate (BTO)
4) Contract-add-and-operate (CAO)
5) Develop-operate-and-transfer (DOT)
6) Rehabilitate-operate-and-transfer (ROT)
7) Rehabilitate-own-and-operate (ROO).
b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-operate-and-transfer or build-
and-transfer scheme.

II

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:

Sec. 5 Public Bidding of Projects. — Upon approval of the projects mentioned in Section 4 of this Act, the
concerned head of the infrastructure agency or local government unit shall forthwith cause to be published, once
every week for three (3) consecutive weeks, in at least two (2) newspapers of general circulation and in at least
one (1) local newspaper which is circulated in the region, province, city or municipality in which the project is to be
constructed a notice inviting all duly prequalified infrastructure contractors to participate in the public bidding for
the projects so approved. In the case of a build-operate-and-transfer arrangement, the contract shall be awarded
to the lowest complying bidder based on the present value of its proposed tolls, fees, rentals, and charges over a
fixed term for the facility to be constructed, operated, and maintained according to the prescribed minimum design
and performance standards plans, and specifications. For this purpose, the winning contractor shall be
automatically granted by the infrastructure agency or local government unit the franchise to operate and maintain
the facility, including the collection of tolls, fees, rentals; and charges in accordance with Section 6 hereof.

In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder
based on the present value of its proposed, schedule of amortization payments for the facility to be constructed
according to the prescribed minimum design and performance standards, plans and specifications: Provided,
however, That a Filipino constructor who submits an equally advantageous bid shall be given preference.

A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be submitted to Congress

for its information.
The requirement of public bidding is not an idle ceremony. It has been aptly said that in our jurisdiction "public
bidding is the policy and medium adhered to in Government procurement and construction contracts under
existing laws and regulations. It is the accepted method for arriving at a fair and reasonable price and ensures
that overpricing, favoritism, and other anomalous practices are eliminated or minimized. And any Government
contract entered into without the required bidding is null and void and cannot adversely affect the rights of third
parties." (Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE
LAW 25 [rev. ed. 1991], citing Caltex vs.  Delgado Bros., 96 Phil. 368 [1954]).

The Office of the president secretary through then Executive Secretary Franklin Drilon Correctly disapproved the
contract because no public bidding is strict compliance with Section 5 of R.A. No. 6957 was conducted. Secretary
Drilon Further bluntly stated that the provision of the Implementing Rules of said law authorizing negotiated
contracts was of doubtful legality. Indeed, it is null and void because the law itself does not recognize or allow
negotiated contracts.

However the majority opinion posits the view that since only private respondent EDSA LRT was prequalified, then
a public bidding would be "an absurd and pointless exercise." I submit that the mandatory requirement of public
bidding cannot be legally dispensed with simply because only one was qualified to bid during the prequalification
proceedings. Section 5 mandates that the BOT or BT contract should be awarded "to the lowest complying
bidder," which logically means that there must at least be two (2) bidders. If this minimum requirement is not met,
then the proposed bidding should be deferred and a new prequalification proceeding be scheduled. Even those
who were earlier disqualified may by then have qualified because they may have, in the meantime, exerted efforts
to meet all the qualifications.

This view of the majority would open the floodgates to the rigging of prequalification proceedings or to unholy
conspiracies among prospective bidders, which would even include dishonest government officials. They could
just agree, for a certain consideration, that only one of them qualify in order that the latter would automatically
corner the contract and obtain the award.

That section 5 admits of no exception and that no bidding could be validly had with only one bidder is likewise
conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a new section
denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation contracts. This new
section reads:

Sec. 5-A. Direct Negotiation Of Contracts — Direct negotiation, shall be resorted to when there is only one
complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification requirements submit a bid/proposal
which subsequently found by the agency/local government unit (LGU) to be complying.

(b) If, after advertisement, more than one contractor applied for prequalification but only one meets the
prequalification .requirements, after which it submits bid/proposal which is found by the agency/local government
unit (LGU) to be complying,

(c) If after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU
to be complying.

(d) If, after prequalification, more than one contractor, only one submit bids but only one is found by the
agency/LGU to be complying: Provided, That, any of the disqualified prospective bidder may appeal the decision
contractor of the implementing agency/LGUs prequalification bids an award committee within fifteen (15) working
days to the head of the agency of national projects or to the Department of the Interior and Local Government, in
case of local projects from the date the disqualification was made known to the disqualified bidder Provided,  That
the implementing agency/LGUs concerned should act on the appeal within forty-five (45) working days from
receipt thereof.

Can this amendment be given retroactive effect to the challenged contract so that it may now be considered a
permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not provide that it should be given
retroactive effect to pre-existing contracts. Section 18 thereof says that it "shall take effect fifteen (15) after its
publication in at least two (2) newspapers of general circulation." If it were the intention of Congress to give said
act retroactive effect then it would have so expressly provided. Article 4 of the Civil Code provides that "[l]aws
shall have no retroactive effect, unless the contrary is provided."

The presumption is that all laws operate prospectively, unless the contrary clearly appears or is clearly, plainly,
and unequivocally expressed or necessarily implied. In every case of doubt, the doubt will be resolved against the
retroactive application of laws. (Ruben E Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to
amendatory acts, or acts which change an existing statute, Sutherland states:

In accordance with the rule applicable to original acts, it is presumed that provisions added by the amendment
affecting substantive rights are intended to operate prospectively. Provisions added by the amendment that affect
substantive rights will not be construed to apply to transactions and events completed prior to its enactment
unless the legislature has expressed its intent to that effect or such intent is clearly implied by the language of the
amendment or by the circumstances surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S
STATUTES AND STATUTORY CONSTRUCTION 434-436 [1943 ed.]).

I vote then to grant the instant petition and to declare void the challenged contract and its supplement.

FELICIANO, J.,  dissenting:
After considerable study and effort, and with much reluctance, I find I must dissent in the instant case. I agree with
many of the things set out in the majority opinion written by my distinguished brother in the Court Quiason, J. At
the end of the day, however, I find myself unable to join in the result reached by the majority.

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly narrow
grounds. At the same time; I wish to address briefly one of Justice Quiason in the majority opinion in his effort to
meet the difficulties posed by Davide Jr., J.

I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled:
"Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts·" More
specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as follows:

Sec. 4. Bidding. — Construction projects shall, generally be undertaken by contract after competitive public
bidding. Projects may be undertaken by administration or force account or by negotiated contract only in
exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or
where there is a conclusive evidence that greater economy and efficiency would be achieved through this
arrangement, and in accordance with provisions of laws and acts on the matter, subject to the approval of the
Ministry of public Works, Transportation and Communications, the Minister of Public Highways, or the Minister of
Energy, as the case may be, if the project cost is less than P1 Million, and of the president of the Philippines,
upon the recommendation of the Minister, if the project cost is P1 Million or more.

xxx xxx xxx

I understand the unspoken theory in the majority opinion utility and the ownership of the facilities used to serve
the public can be very w1594 continue to exist and to run parallel to the provisions of Republic Act No. 6957,
whether in its original form or as amended by Republic Act No. 7718.

A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to all "government
contracts for infrastructure and other  construction projects" But Republic Act No. 6957 as amended by Republic
Act No. 7718, relates on to "infrastructure projects" which are financed, constructed, operated and maintained "by
the private sector" "through the build/operate-and-transfer or build-and-transfer scheme" under Republic Act No.
6597 and under a series of other comparable schemes under Republic Act No. 7718. In other words, Republic Act
No. 6957 and Republic Act. No: 7718 must be held, in my view, to be special statutes applicable to a more limited
field of "infrastructure projects" than the wide-ranging scope of application of the  general statute i.e., Presidential
Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that Republic Act No. 6957 in
specific connection with BCT- and BLT type and BLT type of contracts imposed an unqualified requirement of
public bidding set out in Section 5 thereof.

It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by
administration or force account or by negotiated contract only "

(1) in exceptional cases where time is of the essence; or

(2) where there is lack of bidders or contractors; or

(3) where there is a conclusive evidence that greater economy and efficiency would be achieved through these
arrangements, and in accordance with provision[s] of laws and acts on the matter.

It must, upon the one hand, be noted that the special law Republic Act- No. 6957 made absolutely no
mention of negotiated contracts being permitted to displace the requirement of public bidding. Upon the other
hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act No. 7718,
does not purport to authorize direct negotiation of contracts situations where there is a lack of pre-qualified
contractors or, complying bidders. Thus, even under the amended special statute, entering into contracts by
negotiation is not permissible in the other (2) categories of cases referred to in Section 4 of Presidential Decree
No. 1594, i.e., "in exceptional cases where time is of the essence" and "when there is conclusive evidence that
greater economy and efficiency would be achieved through these arrangements, etc."

The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public bidding
requirement is that set out in Republic Act No. 6957 and, with respect to such type of contracts opened for pre-
qualification and bidding after the date of effectivity of Republic Act No. 7718.  The provision of Republic Act No.
7718. The assailed contract was entered into before Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of presidential Degree No. 1594 to the Edsa LRT-type of contracts are
aggravated when one considers the detailed" Implementing Rules and Regulations as amended April 1988"
issued under that Presidential Decree.1 For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

a. In times of emergencies arising from natural calamities where immediate action is necessary to prevent
imminent loss of life and/or property.

b. Failure to award the contract after competitive public bidding for valid cause or causes [such as where the
prices obtained through public bidding are all above the AAE and the bidders refuse to reduce their prices to the
AAE].
In these cases, bidding may be undertaken through sealed canvass of at least three (3) qualified contractors.
Authority to negotiate contracts for projects under these exceptional cases shall be subject to prior approval by
heads of agencies within their limits of approving authority.

c. Where the subject project is adjacent or contiguous to an on-going project and it could be economically
prosecuted by the same contractor provided that he has no negative slippage and has demonstrated a
satisfactory performance. (Emphasis supplied).

Note that there is no reference at all in these presidential Decree No. 1594 Implementing Rules and Regulations
to absence of pre-qualified applicants and bidders as justifying negotiation of contracts as distinguished from
requiring public bidding or a second public bidding.

Note also the following provision of the same Implementing Rules and Regulations:

IB 1 Prequalification

The following may be become contractors for government projects:

1 Filipino

a. Citizens (single proprietorship)

b. Partnership of  corporation duly organized under the laws of the Philippines, and at least seventy five percent
(75%) of the capital stock of which belongs to Filipino citizens.

2. Contractors forming themselves into a joint venture, i.e., a group of two or more contractors that intend to be
jointly and severally responsible for a particular contract, shall for purposes of bidding/tendering comply with LOI
630, and, aside from being currently and properly accredited by the Philippine Contractors Accreditation Board,
shall comply with the provisions of R.A. 4566, provided thatjoint ventures in which Filipino ownership is less than
seventy five percent ( 75%) may be prequalified where the structures to be built require the  application
of techniques and/or technologies which are not adequately possessed by a Filipino entity as defined above.

[The foregoing shall not negate any existing and future commitments with respect to the bidding and aware of
contracts financed partly or wholly with funds from international lending institutions like the Asian Development
Bank and the Worlds Bank as well as from bilateral and other similar sources.(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT Corporation; there is no
suggestion that this corporation is organized under Philippine law and is at least seventy-five (75%) percent
owned by Philippine citizens.

Public bidding is the normal method by which a government keeps contractors honest and is able to assure itself
that it would be getting the best possible value for its money in any construction or similar project. It is not for
nothing that multilateral financial organizations like the World Bank and the Asian Development Bank uniformly
require projects financed by them to be implemented and carried out by public bidding. Public bidding is much too
important a requirement casually to loosen by a latitudinarian exercise in statutory construction.

The instant petition should be granted and the challenged contract and its supplement should be nullified and set
aside. A true public bidding, complete with a new prequalification proceeding, should be required for the Edsa
LRT Project.

12. G.R. No. L-28673 October 23, 1984

SAMAR MINING COMPANY, INC., plaintiff-appellee, 
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.:ñé+.£ªwph!1
This is an appeal taken directly to Us on  certiorari from the decision of the defunct Court of First Instance of
Manila, finding defendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee.
The issue raised is a pure question of law, which is, the liability of the defendants, now appellants, under the bill of
lading covering the subject shipment.

The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one
(1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a vessel owned by defendant-
appellant NORDEUTSCHER LLOYD, (represented in the Philippines by its agent, C.F. SHARP & CO., INC.),
which shipment is covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC.
Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned importation was unloaded and
delivered in good order and condition to the bonded warehouse of AMCYL. 1 The goods were however never
delivered to, nor received by, the consignee at the port of destination — Davao.

When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee,
filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at that time,
against the former, but neither paid. Hence, the filing of the instant suit to enforce payment. Defendants-
appellants brought in AMCYL as third party defendant.

The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus
attorney's fees and costs. However, the Court stated that defendants may recoup whatever they may pay plaintiff
by enforcing the judgment against third party defendant AMCYL which had earlier been declared in default. Only
the defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations which
should be examined in the light of pertinent legal provisions and settled jurisprudence. This undertaking is not
only proper but necessary as well because of the nature of the bill of lading which operates both as a receipt for
the goods; and more importantly, as a contract to transport and deliver the same as stipulated therein. 2 Being a
contract, it is the law between the parties thereto 3 who are bound by its terms and conditions 4 provided that
these are not contrary to law, morals, good customs, public order and public policy. 5

Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire sieves was
received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany, while the
freight had been prepaid up to the port of destination or the "port of discharge of goods in this case, Davao, the
carrier undertook to transport the goods in its vessel, M/S SCHWABENSTEIN only up to the "port of discharge
from ship-Manila. Thereafter, the goods were to be transshipped by the carrier to the port of destination or "port of
discharge of goods The stipulation is plainly indicated on the face of the bill which contains the following phrase
printed below the space provided for the port of discharge from ship", thus: têñ.£îhqwâ£

if goods are to be transshipped at port of discharge, show destination under the column for "description of
contents" 7

As instructed above, the following words appeared typewritten under the column for "description of contents": têñ.
£îhqwâ£

PORT OF DISCHARGE OF GOODS: DAVAO 

FREIGHT PREPAID 8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the
custody of AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual stipulations
contained in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants' duty to transship
the goods from Manila to their port of destination-Davao. The word "transship" means: têñ.£îhqwâ£

to transfer for further transportation from one ship or conveyance to another 9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are
spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to wit: têñ.£îhqwâ£

The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before the
goods enter ship's tackle to be loaded or after the goods leave ship's tackle to be discharged, transshipped or
forwarded ... (Emphasis supplied)

and in Section 11 of the same Bill, which provides: têñ.£îhqwâ£

Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed at carrier's
disposal at or consigned to a point where the ship does not expect to load or discharge, the carrier or master may,
without notice, forward the whole or any part of the goods before or after loading at the original port of
shipment, ... This carrier, in making arrangements for any transshipping or forwarding vessels or means of
transportation not operated by this carrier shall be considered solely the forwarding agent of the shipper and
without any other responsibility whatsoever even though the freight for the whole transport has been collected by
him. ... Pending or during forwarding or transshipping the carrier may store the goods ashore or afloat solely as
agent of the shipper and at risk and expense of the goods and the carrier shall not be liable for detention nor
responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are entrusted or delivered
for storage, handling or any service incidental thereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged
the same in full and good condition unto the custody of AMCYL at the port of discharge from ship — Manila, and
therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo
had ceased. 11

We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability
for loss or damage to the goods when the same are not in its actual custody has been upheld by Us in PHOENIX
ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches the present
controversy not only as to the material facts but more importantly, as to the stipulations contained in the bill of
lading concerned. As if to underline their awesome likeness, the goods in question in both cases were destined
for Davao, but were discharged from ship in Manila, in accordance with their respective bills of lading.

The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject
stipulations before Us, provides: têñ.£îhqwâ£

The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are
not in its actual custody. (Par. 2, last subpar.)

xxx xxx xxx

The carrier or master, in making arrangements with any person for or in connection with all transshipping or
forwarding of the goods or the use of any means of transportation or forwarding of goods not used or operated by
the carrier, shall be considered solely the agent of the shipper and consignee and without any other responsibility
whatsoever or for the cost thereof ... (Par. 16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We
sustained their validity 13 Applying said stipulations as the law between the parties in the aforecited case, the
Court concluded that: têñ.£îhqwâ£
... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo is Manila,
but that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the
long form Bill of Lading ( ), appellee's responsibility as a common carrier ceased the moment the goods were
unloaded in Manila and in the matter of transshipment,  appellee acted merely as an agent of the shipper and
consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in
conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third
paragraph of Section 1 thereof are valid stipulations between the parties insofar as they exempt the carrier from
liability for loss or damage to the goods while the same are not in the latter's actual custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign
country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not regulated by said
Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special
laws. 16 A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book
IV) directs our attention to Article 1736 thereof, which reads: têñ.£îhqwâ£

Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive
them, without prejudice to the provisions of article 1738.

Article 1738 referred to in the foregoing provision runs thus: têñ.£îhqwâ£

Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the
goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of
the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of
them.

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation
where the goods had already reached their place of destination and are stored in the warehouse of the carrier.
The subject goods were still awaiting transshipment to their port of destination, and were stored in the warehouse
of a third party when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under said
article, the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or
constructive delivery of the same by the carrier to the consignee, or to the person who has a right to receive them.
In sales, actual delivery has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporeal possession by the buyer or by some person authorized by him to receive the goods as
his representative for the purpose of custody or disposal. 17 By the same token, there is actual delivery in
contracts for the transport of goods when possession has been turned over to the consignee or to his duly
authorized agent and a reasonable time is given him to remove the goods. 18 The court a quo  found that there
was actual delivery to the consignee through its duly authorized agent, the carrier.

It becomes necessary at this point to dissect the complex relationship that had developed between appellant and
appellee in the course of the transactions that gave birth to the present suit. Two undertakings appeared
embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS
from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to
Davao, with appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of
appellant which is the moment when the subject goods are discharged in Manila, its personality changes from that
of carrier to that of agent of the consignee. Thus, the character of appellant's possession also changes, from
possession in its own name as carrier, into possession in the name of consignee as the latter's agent. Such being
the case, there was, in effect, actual delivery of the goods from appellant as carrier to the same appellant as
agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any
loss or damage that may befall the goods from that point onwards. This is the full import of Article 1736, as
applied to the case before Us.

But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods,
It is true that the transshipment of the goods, which was the object of the agency, was not fully performed.
However, appellant had commenced said performance, the completion of which was aborted by circumstances
beyond its control. An agent who carries out the orders and instructions of the principal without being guilty of
negligence, deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the object of
the agency, 21This can be gleaned from the following provisions of the New Civil Code on the obligations of the
agent: têñ.£îhqwâ£

Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which,
through his non-performance, the principal may suffer.

xxx xxx xxx

Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the
principal, he should prefer his own.

Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall
be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power but without designating the person and the person appointed was notoriously
incompetent or insolvent.
xxx xxx xxx

Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged with more
or less rigor by the courts, according to whether the agency was or was not for a compensation.

The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the
Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT, which
acted as appellant's substitute in storing the goods awaiting transshipment.

The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful
stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code on common
carriers, agency and contracts, they incur no liability for the loss of the goods in question.

WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby

DISMISSED.

No costs.

SO ORDERED.1äwphï1.ñët

13. G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner, 

vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner, 

vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO.,
LTD., respondents.

MELENCIO-HERRERA, J.:

These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking
of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo.

The basic facts are not in controversy:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner
Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for
transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned
to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central
Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated value with respondent
Development Insurance and Surety Corporation.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and
accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying
instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for their
stated value by respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by
respondent Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00.

Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo.
The respective respondent Insurers paid the corresponding marine insurance values to the consignees concerned
and were thus subrogated unto the rights of the latter as the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short),
having been subrogated unto the rights of the two insured companies, filed suit against petitioner Carrier for the
recovery of the amounts it had paid to the insured before the then Court of First instance of Manila, Branch XXX
(Civil Case No. 6087).

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event,
hence, it is not liable under the law.

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of
P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs.
Petitioner Carrier took an appeal to the then Court of Appeals which, on August 14, 1984, affirmed.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine
Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the
recovery of the insured value of the cargo lost with the then Court of First Instance of Manila, Branch 11 (Civil
Case No. 116151), imputing unseaworthiness of the ship and non-observance of extraordinary diligence by
petitioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an
exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the
loss of fire is established, the burden of proving negligence of the vessel is shifted to the cargo shipper.

On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US
$46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On
appeal by petitioner, the then Court of Appeals on September 10, 1984, affirmed with modification the Trial
Court's judgment by decreasing the amount recoverable by DOWA to US $1,000.00 because of $500 per
package limitation of liability under the COGSA.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division, and
G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for
Reconsideration, however, G.R. No. 69044 was given due course on March 25, 1985, and the parties were
required to submit their respective Memoranda, which they have done.

On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the
Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-numbered case, which was
then pending resolution with the First Division. The same was granted; the Resolution of the Second Division of
September 25, 1985 was set aside and the Petition was given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a
charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs are represented by
various counsel representing various consignees or insurance companies. The common defendant in these cases
is petitioner herein, being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's
pleading are deemed admissions of that party and binding upon it. 2 And an admission in one pleading in one
action may be received in evidence against the pleader or his successor-in-interest on the trial of another action to
which he is a party, in favor of a party to the latter action. 3

The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions on Common
carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the
carrier?

On the Law Applicable

The law of the country to which the goods are to be transported governs the liability of the common carrier in case
of their loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to the
Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters not
regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce
and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the
Civil Code. 7

On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over goods, according to all the
circumstances of each case. 8Common carriers are responsible for the loss, destruction, or deterioration of the
goods unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;

xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural
disaster or calamity. " However, we are of the opinion that fire may not be considered a natural disaster or
calamity. This must be so as it arises almost invariably from some act of man or by human means. 10 It does not
fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or
calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural
lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such
event, considering that the law adopts a protection policy towards agriculture. 14

As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil
Code provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have
been at fault or to have acted negligently, unless it proves that it has observed the extraordinary deligence
required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods
have been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon
Petitioner Carrier to proved that it has exercised the extraordinary diligence required by law. In this regard, the
Trial Court, concurred in by the Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf the vessel,
Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No. 3; that where the
smoke was noticed, the fire was already big; that the fire must have started twenty-four 24) our the same was
noticed; that carbon dioxide was ordered released and the crew was ordered to open the hatch covers of No, 2 tor
commencement of fire fighting by sea water: that all of these effort were not enough to control the fire.

Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the goods.
The evidence of the defendant did not show that extraordinary vigilance was observed by the vessel to prevent
the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount of
diligence made by the crew, on orders, in the care of the cargoes. What appears is that after the cargoes were
stored in the hatches, no regular inspection was made as to their condition during the voyage. Consequently, the
crew could not have even explain what could have caused the fire. The defendant, in the Court's mind, failed to
satisfactorily show that extraordinary vigilance and care had been made by the crew to prevent the occurrence of
the fire. The defendant, as a common carrier, is liable to the consignees for said lack of deligence required of it
under Article 1733 of the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law,
Petitioner Carrier cannot escape liability for the loss of the cargo.

And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is
required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only
cause of the loss," and that the carrier has "exercised due diligence to prevent or minimize the loss before, during
or after the occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily.

Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein
that:

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from

(b) Fire, unless caused by the actual fault or privity of the carrier.

xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of
the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already big; that the fire
must have started twenty-four (24) hours before the same was noticed; " and that "after the cargoes were stored
in the hatches, no regular inspection was made as to their condition during the voyage." The foregoing suffices to
show that the circumstances under which the fire originated and spread are such as to show that Petitioner
Carrier or its servants were negligent in connection therewith. Consequently, the complete defense afforded by
the COGSA when loss results from fire is unavailing to Petitioner Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section 4(5)
of the COGSA, which reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United
States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been declared by the shipper before shipment
and inserted in bill of lading. This declaration if embodied in the bill of lading shall be prima facie evidence, but all
be conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper another maximum amount than
that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the figure
above named. In no event shall the carrier be Liable for more than the amount of damage actually sustained.

xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods appearing in the bill
of lading, unless the shipper or owner declares a greater value, is binding.

It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per
package although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is
suppletory to the provisions of the Civil Code, steps in and supplements the Code by establishing a statutory
provision limiting the carrier's liability in the absence of a declaration of a higher value of the goods by the shipper
in the bill of lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a
bill of lading as though physically in it and as much a part thereof as though placed therein by agreement of the
parties. 16

In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the
carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher value of the goods.
Hence, Petitioner Carrier's liability should not exceed US $500 per package, or its peso equivalent, at the time of
payment of the value of the goods lost, but in no case "more than the amount of damage actually sustained."

The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly
the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the amount affirmed to be
paid by respondent Court. The goods were shipped in 28 packages (Exhibit "C-2") Multiplying 28 packages by
$500 would result in a product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be
P286,160, or "more than the amount of damage actually sustained." Consequently, the aforestated amount of
P256,039 should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit "I"),
which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by respondent
Court. however, multiplying seven (7) cases by $500 per package at the present prevailing rate of P20.44 to US
$1 (US $3,500 x P20.44) would yield P71,540 only, which is the amount that should be paid by Petitioner Carrier
for those spare parts, and not P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded to
DOWA which was already reduced to $1,000 by the Appellate Court following the statutory $500 liability per
package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN, the
Appellate Court also limited Petitioner Carrier's liability to $500 per package and affirmed the award of $46,583 to
NISSHIN. it multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the figure of $64,000,
and explained that "since this amount is more than the insured value of the goods, that is $46,583, the Trial Court
was correct in awarding said amount only for the 128 cartons, which amount is less than the maximum limitation
of the carrier's liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping
unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the
shipper of floor covering brought action against the vessel owner and operator to recover for loss of ingots and
floor covering, which had been shipped in vessel — supplied containers. The U.S. District Court for the Southern
District of New York rendered judgment for the plaintiffs, and the defendant appealed. The United States Court of
Appeals, Second Division, modified and affirmed holding that:

When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the
number of such units is disclosed in the shipping documents, each of those units and not the container constitutes
the "package" referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of Goods by
Sea Act, 4(5), 46 U.S.C.A.& 1304(5).

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnished
containers whose contents are disclosed should be treated as packages, the interest in securing international
uniformity would suggest that they should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.
1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a package is
inconsistent with the congressional purpose of establishing a reasonable minimum level of liability, Judge Beeks
wrote, 414 F. Supp. at 907 (footnotes omitted):

Although this approach has not completely escaped criticism, there is, nonetheless, much to commend it. It gives
needed recognition to the responsibility of the courts to construe and apply the statute as enacted, however great
might be the temptation to "modernize" or reconstitute it by artful judicial gloss. If COGSA's package limitation
scheme suffers from internal illness, Congress alone must undertake the surgery. There is, in this regard, obvious
wisdom in the Ninth Circuit's conclusion in Hartford that technological advancements, whether or not forseeable
by the COGSA promulgators, do not warrant a distortion or artificial construction of the statutory term "package."
A ruling that these large reusable metal pieces of transport equipment qualify as COGSA packages — at least
where, as here, they were carrier owned and supplied — would amount to just such a distortion.

Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be
considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed in a
carrier's container. I would liken these containers to detachable stowage compartments of the ship. They simply
serve to divide the ship's overall cargo stowage space into smaller, more serviceable loci. Shippers' packages are
quite literally "stowed" in the containers utilizing stevedoring practices and materials analogous to those employed
in traditional on board stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd 943 (4
Cir. 1979), another district with many maritime cases followed Judge Beeks' reasoning in Matsushita and similarly
rejected the functional economics test. Judge Kellam held that when rolls of polyester goods are packed into
cardboard cartons which are then placed in containers, the cartons and not the containers are the packages.

xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes,  18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were then
placed by the shipper into a carrier- furnished container. The number of cartons was disclosed to the carrier in the
bill of lading. Eurygenes followed the Mitsui test and treated the cartons, not the container, as the COGSA
packages. However, Eurygenes indicated that a carrier could limit its liability to $500 per container if the bill of
lading failed to disclose the number of cartons or units within the container, or if the parties indicated, in clear and
unambiguous language, an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third World Delivery
Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham International Law Journal, Vol. 6, 1982-
83, Number 1) (Emphasis supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of
cartons or units, as well as the nature of the goods, and applying the ruling in the Mitsui  and Eurygenes cases it is
clear that the 128 cartons, not the two (2) containers should be considered as the shipping unit subject to the
$500 limitation of liability.

True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not.
Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so
furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed.
Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of Lading are not
already packed into container(s) at the time of receipt, the Carrier shall be at liberty to pack and carry them in any
type of container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning
that the goods could probably fit in two (2) containers only. It cannot mean that the shipper had furnished the
containers for if so, "Two (2) Containers" appearing as the first entry would have sufficed. and if there is any
ambiguity in the Bill of Lading, it is a cardinal principle in the construction of contracts that the interpretation of
obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 20 This applies with
even greater force in a contract of adhesion where a contract is already prepared and the other party merely
adheres to it, like the Bill of Lading in this case, which is draw. up by the carrier. 21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its witnesses in
Japan by written interrogatories.

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On this
point, the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27, 1978, when its
answer was prepared and filed in Court, until September 26, 1978, when the pre-trial conference was conducted
for the last time, the defendant had more than nine months to prepare its evidence. Its belated notice to take
deposition on written interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two
days before the hearing set for August 27th, knowing fully well that it was its undertaking on July 11 the that the
deposition of the witnesses would be dispensed with if by next time it had not yet been obtained, only proves the
lack of merit of the defendant's motion for postponement, for which reason it deserves no sympathy from the
Court in that regard. The defendant has told the Court since February 16, 1979, that it was going to take the
deposition of its witnesses in Japan. Why did it take until August 25, 1979, or more than six months, to prepare its
written interrogatories. Only the defendant itself is to blame for its failure to adduce evidence in support of its
defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it was
denied due process when the Trial Court rendered its Decision on the basis of the evidence adduced. What due
process abhors is absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award by
the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and
P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.

Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of
P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.

WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay
the Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28) packages of
calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from the
date of the filing of the complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.

2) In G.R.No.71478,the judgment is hereby affirmed.

SO ORDERED.

Narvasa, Cruz, Feliciano and Gancayco, JJ., concur. 

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not the
two (2) containers, should be considered as the shipping unit for the purpose of applying the $500.00 limitation
under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by the
Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F. 2d
807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that carrier-
furnished containers whose contents are fully disclosed are not "packages" within the meaning of Section 4 (5) of
COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the
following reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and (2)
the rule laid down in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court
held: "Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be
considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed in a
carrier's container. I would liken these containers to detachable stowage compartments of the ship." Cartons or
crates placed inside carrier-furnished containers are deemed stowed in the vessel itself, and do not lose their
character as individual units simply by being placed inside container provided by the carrier, which are merely
"detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-supplied. This
fact cannot be presumed. The facts of the case in fact show that this was the only shipment placed in containers.
The other shipment involved in the case, consisting of surveying instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of
lading. Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate that
the shipment could fit in two containers, thereby showing that when the goods were delivered by the shipper, they
were not yet placed inside the containers and that it was the petitioner carrier which packed the goods into its own
containers, as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such assumption
cannot be made in view of the following words clearly stamped in red ink on the face of the bill of lading:
"Shipper's Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper which loaded and
counted the goods placed inside the container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number of
cartons said to be contained inside them was indicated in the bill of lading, on the mere say-so of the shipper. The
freight paid to the carrier on the shipment was based on the measurement (by volume) of the two containers at
$34.50 per cubic meter. The shipper must have saved on the freight charges by using containers for the
shipment. Under the circumstances, it would be unfair to the carrier to have the limitation of its liability under
COGSA fixed on the number of cartons inside the containers, rather than on the containers themselves, since the
freight revenue was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA
package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern
technological changes have revolutionized the shipping industry. There is need for the law itself to be updated to
meet the changes brought about by the container revolution, but this is a task which should be addressed by the
legislative body. Until then, this Court, while mindful of American jurisprudence on the subject, should make its
own interpretation of the COGSA provisions, consistent with what is equitable to the parties concerned. There is
need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on the
freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have entailed
higher freight charges; instead of paying higher freight charges, the shipper protected itself by insuring the
shipment. As subrogee, the insurance company can recover from the carrier only what the shipper itself is entitled
to recover, not the amount it actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or "package" within
the purview of COGSA. However, we realize that this may not be equitable as far as the shipper is concerned. If
the container is not regarded as a "package" within the terms of COGSA, then, the $500.00 liability limitation
should be based on "the customary freight unit." Sec. 4 (5) of COGSA provides that in case of goods not shipped
in packages, the limit of the carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the
petitioner's liability for the shipment in question based on "freight unit" would be $21,950.00 for the shipment of
43.9 cubic meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

Separate Opinion
YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not the
two (2) containers, should be considered as the shipping unit for the purpose of applying the $500.00 limitation
under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by the
Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F. 2d
807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that carrier-
furnished containers whose contents are fully disclosed are not "packages" within the meaning of Section 4 (5) of
COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the
following reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and (2)
the rule laid down in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court
held: "Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be
considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed in a
carrier's container. I would liken these containers to detachable stowage compartments of the ship." Cartons or
crates placed inside carrier-furnished containers are deemed stowed in the vessel itself, and do not lose their
character as individual units simply by being placed inside container provided by the carrier, which are merely
"detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-supplied. This
fact cannot be presumed. The facts of the case in fact show that this was the only shipment placed in containers.
The other shipment involved in the case, consisting of surveying instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of
lading. Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate that
the shipment could fit in two containers, thereby showing that when the goods were delivered by the shipper, they
were not yet placed inside the containers and that it was the petitioner carrier which packed the goods into its own
containers, as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such assumption
cannot be made in view of the following words clearly stamped in red ink on the face of the bill of lading:
"Shipper's Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper which loaded and
counted the goods placed inside the container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number of
cartons said to be contained inside them was indicated in the bill of lading, on the mere say-so of the shipper. The
freight paid to the carrier on the shipment was based on the measurement (by volume) of the two containers at
$34.50 per cubic meter. The shipper must have saved on the freight charges by using containers for the
shipment. Under the circumstances, it would be unfair to the carrier to have the limitation of its liability under
COGSA fixed on the number of cartons inside the containers, rather than on the containers themselves, since the
freight revenue was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA
package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern
technological changes have revolutionized the shipping industry. There is need for the law itself to be updated to
meet the changes brought about by the container revolution, but this is a task which should be addressed by the
legislative body. Until then, this Court, while mindful of American jurisprudence on the subject, should make its
own interpretation of the COGSA provisions, consistent with what is equitable to the parties concerned. There is
need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on the
freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have entailed
higher freight charges; instead of paying higher freight charges, the shipper protected itself by insuring the
shipment. As subrogee, the insurance company can recover from the carrier only what the shipper itself is entitled
to recover, not the amount it actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or "package" within
the purview of COGSA. However, we realize that this may not be equitable as far as the shipper is concerned. If
the container is not regarded as a "package" within the terms of COGSA, then, the $500.00 liability limitation
should be based on "the customary freight unit." Sec. 4 (5) of COGSA provides that in case of goods not shipped
in packages, the limit of the carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the
petitioner's liability for the shipment in question based on "freight unit" would be $21,950.00 for the shipment of
43.9 cubic meters.

I concur with the rest of the decision.

14. G.R. No. L-49407 August 19, 1988

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant, 
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-
appellees.
No. L-49469 August 19, 1988
MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant, 
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-
appellees.
Balgos & Perez Law Office for private respondent in both cases.

PARAS, J.:

These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled
"Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and
National Development Company defendant-appellants," affirming in toto the decision ** in Civil Case No. 60641 of
the then Court of First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company and
Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff Development Insurance and
Surety Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN
PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with the legal interest thereon from the filing of plaintiffs
complaint on April 22, 1965 until fully paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of damages as
and for attorney's fee.

On defendant Maritime Company of the Philippines' cross-claim against the defendant National Development
Company, judgment is hereby rendered, ordering the National Development Company to pay the cross-claimant
Maritime Company of the Philippines the total amount that the Maritime Company of the Philippines may
voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant to the judgment rendered in this
case.

With costs against the defendant Maritime Company of the Philippines.

(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows:

The evidence before us shows that in accordance with a memorandum agreement entered into between
defendants NDC and MCP on September 13, 1962, defendant NDC as the first preferred mortgagee of three
ocean going vessels including one with the name 'Dona Nati' appointed defendant MCP as its agent to manage
and operate said vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964 the E. Philipp
Corporation of New York loaded on board the vessel "Dona Nati" at San Francisco, California, a total of 1,200
bales of American raw cotton consigned to the order of Manila Banking Corporation, Manila and the People's
Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who represents
Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on the same vessel at Tokyo, Japan,
were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of
200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila the vessel
Dofia Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS
Yasushima Maru' as a result of which 550 bales of aforesaid cargo of American raw cotton were lost and/or
destroyed, of which 535 bales as damaged were landed and sold on the authority of the General Average
Surveyor for Yen 6,045,-500 and 15 bales were not landed and deemed lost (Exh. G). The damaged and lost
cargoes was worth P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as
holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A- 2, N-3
and R-3}. Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the
order of Manila Banking Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00 which the
plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M-1 and S-3). Thus, the
plaintiff had paid as insurer the total amount of P364,915.86 to the consignees or their successors-in-interest, for
the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from the defendants-
NDC and MCP as owner and ship agent respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, p.38)

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First Instance
of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00 against NDC
and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the action has prescribed,
MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an Opposition on May
21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24). On June 29, 1965, the trial
court deferred the resolution of the motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On
June 8, 1965, MCP filed its answer with counterclaim and cross-claim against NDC.

NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also filed
an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16, 1965,
NDC's answer to DISC's complaint was stricken off from the record for its failure to answer DISC's written
interrogatories and to comply with the trial court's order dated August 14, 1965 allowing the inspection or
photographing of the memorandum of agreement it executed with MCP. Said order of October 16, 1965 likewise
declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the order
of October 16, 1965, but the trial court denied it in its order dated September 21, 1966.

On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a
decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of P364,915.86 plus
the legal rate of interest to be computed from the filing of the complaint on April 22, 1965, until fully paid and
attorney's fees of P10,000.00. Likewise, in said decision, the trial court granted MCP's crossclaim against NDC.

MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its
motion to set aside the decision was denied by the trial court in its order dated February 13,1970.
On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial
court.

Hence these appeals by certiorari.

NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July
25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979, these
consolidated cases were given due course (Rollo, p. 108) and submitted for decision on February 29, 1980 (Rollo,
p. 136).

In its brief, NDC cited the following assignments of error:

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT
SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS
BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE
COLLISION OF ITS VESSEL "DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN
OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.

II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED BY
THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN
PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo).

On its part, MCP assigned the following alleged errors:

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT
INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER
MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.

II

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF
RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST
HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF
LIMITATION AND HAS ALREADY PRESCRIBED.

III

THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENTS

EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DONA NATI
AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT
THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE
COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE
COMPLEMENT OF THE SS DONA NATI

IV

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE
PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF
SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND
THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF
OR DAMAGES TO CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE
YASUSHIMA MARU.

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE
CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF
P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF
LADING AND ALSO IN HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION
IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.

VI

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL

DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO
HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF
P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS
P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO
PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF
ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo)

The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of
goods due to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of
prescription provided thereunder.
The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the
case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not
responsible for the loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or the
servants of the carrier in the navigation or in the management of the ship." Thus, NDC insists that based on the
findings of the trial court which were adopted by the Court of Appeals, both pilots of the colliding vessels were at
fault and negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea Act. Instead,
Article 287 of the Code of Commerce was applied and both NDC and MCP were ordered to reimburse the
insurance company for the amount the latter paid to the consignee as earlier stated.

This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470
[1987]) where it was held under similar circumstance "that the law of the country to which the goods are to be
transported governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article
1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the
Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by
said Code, the rights and obligations of common carrier shall be governed by the Code of commerce and by laws
(Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the
provision of the Civil Code.

In the case at bar, it has been established that the goods in question are transported from San Francisco,
California and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to
have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is
evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign
waters, such as Ise Bay, Japan.

Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public
policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them according to all circumstances of each case. Accordingly, under Article 1735 of
the same Code, in all other than those mentioned is Article 1734 thereof, the common carrier shall be presumed
to have been at fault or to have acted negigently, unless it proves that it has observed the extraordinary diligence
required by law.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no
reversible error can be found in respondent courses application to the case at bar of Articles 826 to 839, Book
Three of the Code of Commerce, which deal exclusively with collision of vessels.

More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel
of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert
appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if the collision
is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the
losses and damages suffered by their cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or
carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the captain.
Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the
shipmaster or captain is merely the representative of the owner who has the actual or constructive control over
the conduct of the voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic
trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does
not specifically provide for the subject of collision, said Act in no uncertain terms, restricts its application "to all
contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section I thereof, it
is explicitly provided that "nothing in this Act shall be construed as repealing any existing provision of the Code of
Commerce which is now in force, or as limiting its application." By such incorporation, it is obvious that said law
not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its
application.

On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety
Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers have
either the ownership or special property right or beneficial interest in the cargo in question; neither was it proved
that the bills of lading were transferred or assigned to the alleged subrogers; thus, they could not possibly have
transferred any right of action to said plaintiff- appellee in this case. (Brief for the Maritime Company of the
Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed
bills of lading covering the shipments in question and an examination of the invoices in particular, shows that the
actual consignees of the said goods are the aforementioned companies. Moreover, no less than MCP itself issued
a certification attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total
amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that said
plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-
G.R. No. 46513-R, p. 10; Rollo, p. 43).

MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator of
the vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it can only be liable if it
acted in excess of its authority.

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962
(Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of
Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including
the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently,
under the circumstances, MCP cannot escape liability.

It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both
are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the
owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v.
Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo,
42 Phil. 256, 262 [1921]); that while it is true that the liability of the naviero in the sense of charterer or agent, is
not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of
jurisprudence under the Civil Code but more specially as regards contractual obligations in Article 586 of the
Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly
and severally liable, since the obligation which is the subject of the action had its origin in a tortious act and did
not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the
agent, even though he may not be the owner of the vessel, is liable to the shippers and owners of the cargo
transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his rights
against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight (Behn Meyer
Y Co. v. McMicking et al. 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per
bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages
should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and
corroborated no less by invoices offered as evidence ' during the trial. Besides, common carriers, in the language
of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a
loss of goods where such injury or loss was caused by its own negligence." Negligence of the captains of the
colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes
and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages
(Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and
not to the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said claim is
not only at variance with NDC's posture, but also contrary to the factual findings of the trial court affirmed no less
by the Court of Appeals, that both pilots were at fault for not changing their excessive speed despite the thick fog
obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-
shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on April 18,1964 was
merely tentative to give allowances for such contingencies that said vessel might not arrive on schedule at Manila
and therefore, would necessitate the trans-shipment of cargo, resulting in consequent delay of their arrival. In fact,
because of the collision, the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June
12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they could have
arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the instant case was filed on April
22, 1965, that is, long before the lapse of one (1) year from the date the lost or damaged cargo "should have been
delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the
respondent Appellate Court is AFFIRMED.

SO ORDERED.

Melencio-Herrera, (Chairperson), Padilla, and Sarmiento, JJ., concur.